5 Steps to Take When You Turn 50

The time to think about retirement is not when you turn 65.  In fact, the younger you start thinking about retirement, the better.  But if you’re about to turn 50, it’s not too late.  Your 50th birthday is a great milestone that you can use to catch up on your retirement planning.  If you take the following steps by the time you turn 50, you’ll be in a much better position to retire when you want to.
1. Make Catch-Up Contributions
If you have an IRA or a 401k, you may have been frustrated in the past by the contribution limits. In 2013, the IRS is allowing a total of $5,000 to be contributed across all your IRA accounts and a total of $17,500 across all 401k accounts. But once you reach your 50th birthday, you can make an additional contribution of $1,000 across all your IRA accounts (that includes both traditional and Roth IRAs) and another $5,500 across all your 401ks. If you make those catch-up contributions each year, they really add up. For example, if you retire at 65 and make catch-up contributions every year starting at age 50, that’s an additional $97,500 of principal in your various retirement accounts (assuming contribution limits don’t increase, which they likely will). With the interest you gain over that time period, this total could be well over $100,000.
2. Start Thinking about Your Required Minimum Distribution
Speaking of IRAs, age 50 is the time to start thinking about your RMD. When you turn 70½, the IRS requires you to start taking a certain percentage of money out of your traditional IRAs, and you will have to pay taxes on the amount withdrawn. There is a way to avoid this, and that’s by converting your traditional IRAs into Roth IRAs. When you have a Roth IRA, it grows tax-free from the time you make the conversion. You will have to pay taxes on the amount when you make the conversion, but it’s something that’s better done sooner, rather than later. You can even roll the money over in small amounts each year until you turn 70½, that way your tax burden will be less each year. If you start thinking about your RMD when you turn 50, you will have the luxury of time to help you plan out the best way to turn your tax-deferred IRA money into tax-free Roth IRA money.
3. Start Thinking about Long Term Care
The U.S. Department of Health and Human Services estimates that you have about a 70% chance of needing Long Term Care at some point in your life. This includes stays in nursing homes, assisted living facilities and in-home care. Staying for one year in a nursing home can easily cost $75,000 or even more. Are you prepared to pay those expenses for yourself? The answer to this problem is Long Term Care insurance. People are often surprised to find that most health insurance does not cover Long Term Care expenses. That’s why Long Term Care insurance exists, to cover these expenses. You may think that LTC insurance premiums are too high, but when you compare that to the cost of staying in a nursing home, it quickly becomes clear that LTC insurance is worth the cost. And your 50th birthday is the perfect time to start thinking about LTC, because your chances of ending up in a nursing home increase exponentially the older you get.
4. Protect Your Nest Egg from Risk
Although most financial advisors won’t tell you this, everyone needs to start moving their assets around as they get older, to get them away from risk. The stocks, bonds and mutual funds that made sense for you when you were young are too risky for people in or near retirement. When you turn 50, you need to take a look at your portfolio and start thinking about reducing your risk. The closer you get to retirement, the more important it is to take your money out of risky investments and put it into guaranteed vehicles that can protect you from losing everything in the event of a market crash. If you continue to chase big gains all the way up to the day you retire, you run the risk of erasing everything you’ve saved, and when you’re retired, you can’t go back out and re-accumulate a nest egg the way you could when you were in your 20s.
5. Think about Downsizing Your Life.
When you turn 50, it’s time to consider that the lifestyle you needed when you were younger may not be right for you anymore. The kids are most likely out of the house at this point. Your health may not be what it used to be. That’s why age 50 is the time to start thinking about downsizing. That big house you needed to raise your family is no longer necessary, and it may actually become a burden to you. Time spent on maintenance and money spent on bills can become too much. In the next decade you may also start to suffer from health problems like arthritis and limited mobility that can make it difficult to get around a big house with stairs. You need to be prepared for this, and it’s better to make preparations for it when you’re 50 and you still have the energy to do so. Get your house ready to be sold if you need to. Go through your possessions and start selling some of the things you no longer use. That way, when you reach retirement, you’ll be ready to downsize an

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