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If you're 50-something, you've probably
been thinking about retirement a lot.
Will you have enough money to last throughout
your retirement?
What should you do with your money after you
retire?
How aggressive should you be with your
investments in your 50s?
Questions like these can be at once exciting and
frightening. Those in their 50s will have to make decisions that encompass lifestyle and
money, two key issues that are central to retirement. One thing that is certain for this
retirement investing group is that times and strategies have changed. People are living
longer and retiring earlier.
Many people know when they want to retire, but haven't
actually figured out how much they're going to need for retirement. They have blindly put
money in an account every month, with no estimate of how long they will live or how much
income they will need. The 50s is a good time to seriously plan for retirement goals by
doing some hard number crunching. You need to identify exactly where your income will come
from and how you'll make it last.
Anticipating Spending
The two most important aspects of retirement planning in
your 50s are reviewing your goals and identifying how much these goals will cost. Many
financial planners suggest that you will need 70% of your pre-retirement income during
retirement, but you may need more than that, depending on your retirement lifestyle.
Deborah Voso, CFP, of Voso Associates in Maryland, gives
this advice for calculating how your retirement expenditures will differ from those during
your working life: "Ask yourself, 'what's different?' ... You have a gold watch, a
nice lunch, but what has really changed?"
"My clients who've retired say their gas costs go
down, what they pay for suits goes down, but not much else goes down. It is important to
remember that the spending style you have now will be carried on into retirement."
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"The spending style you have now
will be carried on into retirement."
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| — Deborah
Voso, CFP |
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What's more, you may have unexpected expenses linked to
health problems faced by you, your spouse, or your parents. You may be putting a child, or
children, through college. These are expenses that need to be factored into your planning.
Voso says that the best approach to retirement planning in
your 50s is to review what your direct income sources are, and how much you'll receive
from them, so that you can plan your lifestyle.
Retirement investing strategies may change for investors in
their 50s, as they realize they are either close to or far from meeting their retirement
income goals. An investor close to retirement—possibly in his or her late
50s—may want to move out of risky investments in to less volatile investments. An
investor with a long way to go toward meeting retirement-income goals may choose more
aggressive investments to make up the shortfall.
Living Longer, Retiring Earlier
Mari Adam, a certified financial planner in Boca Raton,
Florida, says retirement planning has changed radically in the last 10 years.
"There have been several big themes that have changed
how people plan for retirement, but if you had to pick one thing, the biggest would be
increased life expectancy," she said. "This has fundamentally changed retirement
planning, because it has important consequences for investing," she added.
"Retiring at 65 is not the typical model
anymore," said Adam. "If you retire at 60, you may have up to 30+ years or more
not working. This can be longer than most people had working, and takes lifestyle
planning."
Adam stated that she prefers the term "lifestyle
change" to retirement, since the things that encompass this time include possible
relocation, career changes, or cutting back work.
Two Different Approaches
Marilyn Brinnick and her husband Ken own a bookstore they
run out of the family's barn in New Glouster, Maine.
Marilyn and Ken have been preparing for their
"retirement" for nearly a decade, patiently setting up a bookstore named General
Eclectic, which Marilyn refers to as her "fun" job.
For years, the Brinnicks have made it a habit to drive to
their vacation destinations so they can visit estate sales and thrift stores along the
way, looking for books. Marilyn's primary career is accounting, but she looks forward to
retiring from this work by age 62 to focus solely on the bookstore.
The family will fund their retirement from a few different
sources. Marilyn has a 401(k) plan, and will take distributions from both this and Social
Security upon reaching the qualifying ages, 59ý and 62, respectively. This income will
supplement what she and Ken make from the bookstore, a seasonal business, and from a house
they rent out.
In contrast to Marilyn and Ken's well-planned approach to
retirement, Gary, 57, who asked us not to use his full name, had retirement thrust upon
him at age 47.
Gary worked for a major telecommunications company in Des
Moines, Iowa for 22 years until corporate downsizing offered him early retirement. He
hadn't planned on retiring so early, but he was lucky—the company offered a
compensation package he couldn't resist.
"They dangled some big carrots in front of us,"
Gary said. "They added five years on our service time, five years on our age, and 15%
for five years to our pensions."
Gary made several lifestyle decisions. His house was paid
off, which helped enable him to retire early. Plus, he decided not to move east, where the
company would have placed him in a new job, because he didn't want to uproot his
high-school-age child.
To supplement his pension, Gary has valuable company stock
and a self-directed IRA that he funded by rolling over his 401(k) plan when his employment
at the company ended.
Adopt a Strategy
Mari Adam pointed out that most 50-somethings won't have a
company pension to rely on.
"The norm used to be Social Security and a company
pension. Now only one out of 10 retirees have pensions, and instead are responsible for
their own retirement planning," she said.
In this case, the key to attaining retirement goals is
having a money-management strategy.
"It's not the people that have the most money (who
retire successfully), it's the people who manage their money well. You have to ask
yourself what you want in terms of retirement, and quantify this for each age, 50, 60, and
older," she said.
Adam also noted that after knowing what you want in
retirement, planning for its cost is simple mathematics.
"The earlier you plan the better. But, if the
calculation of what you'll have for retirement falls short of your goals … you can
either save more money and invest more aggressively, or spend less prior to
retirement," she added.
Lifestyle Strategies
People may make lifestyle changes at different times, for
different reasons. Some are settling in to leisure or hobbies in their 50s, while others
may be leaving their primary careers in order to pursue other, possibly paid interests.
What general retirement-planning guidelines apply to this group of investors' wide-ranging
concerns?
If you're a 50-something investor, Deborah Voso has a few
suggestions:
- Define what retirement means to you. What will your
lifestyle be in retirement?
- Defining lifestyle means defining how much money you'll
need, so identify what your direct income sources will be.
- Ask what your direct income sources will pay for. Make sure
this list is realistic in terms of income provided, or you may want to consider
readjusting goals or length of time spent working.
- Review asset allocation. Five years or less before
retirement, you generally want to consider moving assets into less risky investments,
while a long-term portfolio can have riskier "growth" assets.
The most critical components of 50-something retirement
planning are time horizon, financial and working goals, and current and anticipated
expenses. These, ultimately, are the key determinants of what lifestyle your long-held pot
of retirement-earmarked gold can provide.
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