September 21, 2022 · Budget, Investment, Retirement, Savings
During different stages and ages of life there can be evolving priorities for finances and lifestyles. Someone in their 20s may be focused on paying rent and advancing their career, and then later, in their 30s, they may be financing a mortgage and supporting their family. By the time people are in their 50s (or older), some of their children may be to be grown and independent, and other life choices emerge and become more significant. Well into middle age, it’s not uncommon to evaluate and decide on upcoming major life changes, such as more detailed retirement planning, emphasizing recreational activities such as travel, physical fitness, additional education, or learning and mastering a hobby.
There is a broad range of potential lifestyle and financial decisions to make and actions to take by age 50+, and below are some suggestions for anyone in that age group. This blog is part of a series covering this important topic, so there will be additional parts to it coming up in the future.
Think about downsizing to a smaller home. If all the space isn’t being used in your current home—perhaps children have moved out, unnecessary possessions have been cleared out and there is too much extra room, or a room set aside for a hobby isn’t necessary now—maybe it’s time to downsize to smaller home. A more compact home could also be less expensive to purchase and operate, with smaller heating and cooling bills, less property taxes, and reduced maintenance costs.
Check that your beneficiary designations are accurate for your accounts. Annually, take a few minutes to confirm that beneficiaries on financial accounts, insurance policies, trusts (and other legal structures that can contain and transfer money) are correct, including checking exact spellings of names and Social Security numbers, legal addresses, phone numbers and email addresses.
Meet with a financial planner and review current finances and plans. If you think you could possibly benefit from professional financial advice, consider meeting with a financial planner for their experienced perspective on managing money. With retirement often becoming more of a reality as we get older, having access to a knowledgeable specialist for guidance can help ensure that personal finances are in order now and on the right track for the future.
Accelerate paying off debt. Generally, it’s a financial advantage to have less debt in your life, since you can avoid regular payments and interest charges that subtract from your income. A mortgage, credit card debt, financing college or other types of loans can prevent you from saving and investing, although a mortgage does let you invest in property that has the potential to increase in value. If some lifestyle sacrifices can be accepted so more debt can be paid off, think about what needs to be done to pay off debt faster. For one of the biggest debts many people owe, it’s important to also…
Consider carefully whether to pay off your mortgage. A mortgage is often the biggest debt carried by Americans, and it can be a pretty big financial relief to pay it off. With a paid mortgage, what used to be monthly payments to a financial institution can instead be applied to retirement savings or investments, shrinking down other debt, making home improvements, funding a new car or recreation, such as vacation trips. One potential financial benefit of maintaining a mortgage is the U.S. federal government deduction on mortgage interest payments. Not everyone’s mortgage interest is deductible. In fact, now with a higher standard deduction and capped state income/ property taxes, many Americans no longer itemize deductions. Based on careful consideration, determine whether paying off your mortgage early has enough long-term advantages to make it worthwhile.
Practice living on a reduced budget. Some people may not be able to afford the same standard of living when they retire that they had before retiring, so it could be prudent to try to live on less now to get used to the change in future lifestyle. Whether it’s cutting back on eating at restaurants, buying fewer clothes, getting less expensive digital services, or having moderately priced vacations, changing how you live now—even on a trial basis for a few weeks or months—might help prepare for life in retirement.
Increase retirement plan contributions using the Internal Revenue Service (IRS) retirement savings catch-up rules that let you save more money for retirement (while reducing taxes) when you turn age 50. Individuals who are age 50 or over at the end of the calendar year can make annual, catch-up contributions to several types of retirement plans, including Individual Retirement Accounts (IRA) and employer-supported plans such as a 401(k). These are higher percentage contributions than what plan participants under age 50 can make. Annual IRA catch-up contribution amounts were up to $6,000 in 2022. If you can cut back on other expenses to increase your retirement contributions, then it’s a smart idea to take advantage of these IRS rules.
For more information that may help you manage your finances at any age, look into the free Delta Community Financial Education Center webinars on a range of prudent and useful financial topics. Please visit the Financial Education Center's Events & Seminars page to register for its on-demand webinars.
The Credit Union’s blog has more information that could be educational and helpful: