Some Americans move into a peak earning decade during their 50s. However, greater earnings don’t necessarily translate to financial security. People in their 50s are facing financial headwinds that include higher costs of living, rising debt, the disappearance of pension funds and an increased reliance on Social Security. A 2019 study from the Center for Financial Services Innovation, funded by the AARP Foundation, indicated that just 17% of adults 50 and older in the low-to-moderate income range are “financially healthy.”
To help protect your financial future, learn about how to prepare for retirement in your 50s, the biggest financial mistakes people make at this juncture and how to avoid them, according to financial planners.
1. Not being intentional with investments and tax planning
Marianne M. Nolte, CFP and founder of Imagine Financial Services, says a foundational issue in this decade is people not knowing their numbers.
“A lot of people guess at their budget. Guessing at your budget isn’t going to cut it when you approach retirement,” she says. “A lot of times they have a 401(k) and don’t think about it—they just know it’s a place a chunk of their paycheck goes. They don’t know if they’re on the right course.”
Lamont Brown, MBA, CFP and principal wealth advisor of ALNA Financial, agrees. “Their investments are here, there and everywhere. Maybe they started a portfolio when they started their first job,” he says. “At that point, they can put it in a fund and forget it. But in their 50s, they want to make sure it’s pointed in the right direction and ask a lot of questions.”
Whether people choose to invest aggressively or conservatively is an individual choice based on a variety of factors including risk tolerance. However, at this phase of life, in addition to considering their own needs, people may also be planning for legacy giving.
2. Failing to take advantage of maximums and catch-up contributions
Brown says the top mistake he sees clients make in this decade is not increasing their retirement savings. “The 50s is like the fourth quarter in a football game. It’s going to make or break the ending,” he says. “In your 50s, you can still make a positive impact on your retirement goal. Most people are still 17 years away.”
The IRS allows people in their 50s to contribute larger amounts than other age groups to catch up to their retirement savings goals. In 2024, people in this decade can contribute up to $30,500 to their 401(k) plans, and they still have the option to contribute up to $7,000 to traditional or Roth IRAs.
3. Falling victim to lifestyle creep
Brown says people in the high-earning decades of the 50s can easily fall into the trap of lifestyle creep. “You should be significantly increasing your savings in your 50s, but I often see the opposite,” he says. With extra cash—and in many cases, children out of the home also creating an extra cash infusion—he sees larger houses and more expensive cars show up. “You should be saving as much as you humanly can. It’s not the time to go start taking on extra expenses,” he says.
4. Withdrawing retirement savings too early
Nolte warns clients from drawing upon their savings too soon, particularly when it comes to Social Security, if that’s a source they will be relying on. Although Americans can begin claiming social security funds at age 62, they don’t receive full benefits until the age of 67, if they’re born after 1960. However, waiting to claim the benefits until age 70 means earning 124% of Social Security benefits.
Withdrawing early from other types of retirement funds, such as Roth IRAs, may also have financial costs. For example, people may withdraw funds from their Roth IRAs at any time; however, they must pay an additional 10% tax on the earnings if they do so before age 59 ½. Additionally, they’re losing out on the benefits they would gain through compound interest if they left the money in the fund longer.
If clients are interested in retiring but have a job that allows them to reduce their hours, Brown advises they “let it ride.” “If you have a job that allows you to work part time, as long as you’re getting paid, as long as it keeps you active, you can ease into retirement. I have a lot of clients that still feel healthy; they just don’t want to work as many hours.” Reducing hours rather than officially retiring can help prevent early withdrawals from retirement funds.
5. Having an out-of-date estate plan
Nolte advises that people in their 50s can easily have an out-of-date estate plan. “Once the documents are drafted, they should be revisited every year or every five years depending on changes in the family. You should be doing what you can to not have a negative impact in probate,” she says. Family changes such as children coming of age, parents passing away, trusted friendships shifting, downsizing (or upsizing) a home, opening new investments, etc., can all affect an estate plan.
Nolte also recommends creating a simple contact list so survivors can easily know how to contact your estate attorney, financial planners and other key estate management professionals, as well as see a list of where accounts are held.
6. Not investing in disability insurance
Brown observes that in this key savings decade, many people in their 50s can easily hinder their long-term plans by encountering a disabling injury or health condition. He advises taking out private short- and long-term disability insurance. While many employer-owned policies only cover a portion of monthly needs, a private policy allows people to anticipate and cover all their financial needs. These policies can prevent people from falling into medical debt and allow them to keep directing funds into retirement savings.
7. Delaying or overlooking long-term care insurance
The U.S. Department of Health and Human Services estimated that more than “half (56%) of Americans turning 65 today will develop a disability serious enough to require [long-term services and supports].” With that in mind, Brown recommends considering long-term care insurance, particularly when people are in their 50s. “It’s the last point where it’s going to be kind of affordable. Right about in your 60s, it goes from affordable to ridiculous. You want to make sure you get long-term care insurance before then,” he advises.
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