The decade or two leading up to your retirement is your last opportunity to maximize your savings. It is very important to make decisions that will positively impact the amount you will be able to safely spend during your retirement.
Increase Your Savings
With your grown children out on their own, you have the ability to save more than you did before. Once you’re done paying for college tuition, you’ll free up additional income to save in retirement accounts and invest for retirement. Redirect as much cash as you can, including raises, tax refunds, and bonuses to retirement savings.
Pay Off Your Mortgage
Paying off your mortgage eliminates one of your biggest monthly bills. While you will still have insurance, taxes, and maintenance costs, your expenses will decline significantly if you own a paid-off house. You will also be able to get by with less savings in retirement because you won’t need to make a house payment.
Get Out of Debt
If you’re making payments on your car, or high-interest credit cards, make it a priority to pay them off before retirement. It will be much easier to pay for retirement if you’re not making payments for these expenses.
Take Advantage of Tax Breaks
Many people in their 50s are in their peak earning years, which can place you in a higher tax bracket than you will be in during retirement. To minimize your annual taxes, take advantage of as many tax breaks as possible, including deductions for saving for retirement and health care accounts.
Downsize Your Life
Re-evaluate whether you still need a several-bedroom house with a large yard. A smaller place is likely to be less expensive to maintain. While it can be difficult to leave behind the memories, moving could greatly reduce your housing costs.
In the year in which you turn 50, the 401(k) contribution limit jumps by $6,000 to $24,500. So you can increase your contribution over the entire year, and not have to wait until your birthday. Older workers can also contribute $1,000 more to an IRA than people under 50 for a total of $6,500. Taking advantage of these tax deductions for retirement account contributions can save you thousands of dollars on your current taxes.
Avoid Gaps in Health Insurance
Health problems are increasingly more likely after 50, but you won’t qualify for Medicare until age 65. Do your best to maintain your health and make sure you are adequately insured. Protect yourself so that a large medical bill won’t ruin your retirement finances.
Make a Social Security Plan
While you can’t sign up for Social Security until age 62, it’s a good idea to start planning when and how you will claim your benefit long before you need it. Signing up at 62 will result in a reduced benefit, while delaying your benefit up until age 70 will increase your monthly payments. Take the time to determine how to maximize your payments over the course of your lifetime.
Insulate Your Career
Job loss during your 50s can be devastating, and many laid off older workers have a difficult time finding another job with similar pay or status. Take steps to make yourself indispensable to the company, and make sure you stay up to date with current technology and new developments in your industry.
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