You need to take some smart money management steps when in your 50s, as it is the prime of your life. Steer clear of less effective financial habits. Check out these money mistakes to avoid at this age, as they could seriously impact your retirement savings. This is because it’s more difficult to recover from financial mistakes that you make, as you get closer to your retirement age.
According to reports from Consumer Affairs, around 26% of people in the US between the ages of 50 to 64 have no retirement accounts for the future. You need to have at least 8 times your retirement salary at the time of retirement, so that you don’t outlive your savings. Here are the top financial missteps to sidestep in your 50s.
- 5 Big Money Mistakes to Avoid in Your 20’s
- Top 3 Money Mistakes to Avoid in Your 30’s
- 8 Money Mistakes You Should Not Make in Your 40’s
Money Mistakes to Avoid in Your 50’s
#1. Supersizing Your Home – Top Money Management Mistakes
You feel you can now afford major renovations and supersize your house. Maybe you can afford it now. But that doesn’t mean you have to do it. It will unnecessary burden you with additional home equity loans that you might have to pay even after retirement. You may not be able to save much for retirement even, so it is one of the important money mistakes to avoid.
In fact, I’d suggest you downsize your home during your 50s, so that you can cut down the mortgage payment.
If you need to pay for a new pool by putting an RRSP contribution on hold, I’d advise against it. If the cost of replacing the roof is keeping you up at nights, you’ve probably chewed more than you can swallow. Downsize. Own a house – don’t let it own you!
You probably earn more than what you did in your 40s, but that doesn’t mean you have to spend more, as this is one of the fatal money mistakes you’d be making.
Don’t be tempted to spend on luxurious vacations, eating meals in costly restaurants or that latest car or go on a mad spending spree on those latest electronic gadgets.
It will only increase your credit card debts and is one of the top money mistakes to avoid. You will not be able to save for emergencies and for your retirement funds.
These are just passing pleasures, so resist falling into the instant gratification expenditure. You don’t have to lead a rock star lifestyle. Use a free online money planner to make your money grow.
#3. No Emergency Funds – Money Mistakes to Avoid
When in your 20s or 30s you can get away with a four or five thousand dollars as emergency cash. But you need to adjust and increase the funds in proportion to your income. Get some retirement advice.
Tip: Save an amount equal to a minimum of six months expenses in a savings account.
#4. Relying Totally on Pension/Social Security
It’s one of the money mistakes to avoid, as you can get the benefits only from the age of 62 and full benefits only from 65 years onwards.
Moreover, your SSS pension alone will not be sufficient to cover all living expenses. You have to factor in the inflation rate, which will bring down the value of your pension money. Also, you need to consider health expenses while saving for retirement.
That doesn’t mean you have to work during your retirement age or that you should borrow from your children. The best alternative is to start saving and make smart investments right now. Use the power of compound interest to your advantage.
#5. Focusing on Kids Education
I know you’d do anything for your children and their education. Who wouldn’t? But don’t sacrifice your future for the sake of the children’s college education, as it’s one of the major money mistakes to avoid.
If you have already used the correct 529 college saving plan, you’re well ahead in the game of saving money in your 50s.
#6. Exposing Yourself to Market Volatility
Diversify your portfolio in order to protect yourself from the volatility of the stock markets. For instance, you can hold shares in many companies spanning different sectors.
Invest in both corporate bonds and in government bonds, as the former offers fewer returns but with a lower default risk. Allocate funds across countries, so that you are not affected by a local crisis. You can also opt for professional management of your funds.
Go over your portfolio and see that you have made investments in the minimal risk categories. As part of investments to make in your 50s, consider stock markets, mutual funds or the UITF.
If you don’t have any idea about such investments, get an advisor. Start reading books and blogs, attend webinars and join online forums like myFICO. Don’t be afraid to ask and take wise decisions.
Tip: If your financier is advising you towards risky investments, it’s time to look for a new advisor.
#7. Ignoring Health
It’s easy to blame your health problems and just carry on. You’ve put on too much weight or your vision has started to get blurry. Your knee or hip hurts or you experience hearing loss. Whatever it may be, don’t ignore the symptoms, as it’s one of the money mistakes to avoid. Aching legs while climbing stairs could point to a peripheral arterial disease and could increase the risk of a heart attack or stroke.
Visit you doctor regularly and get to the root of the problem. Start exercising regularly, as it can help manage most health problems. According to the CDC study, 28% of those above 50 lead an inactive lifestyle.
#8. Borrowing from 401k Plan or IRA account
That’s the last thing you should be doing, being among the biggest money mistakes to avoid. On the contrary, you must contribute the maximum amount for both 401k and for Roth IRA.
Most plans will not allow you to make additional contributions till you repay the balance loan. The whole point is to save for the future, so you are just defeating the purpose by borrowing from it.
For instance, if you use the 401(k) plan for funding your home purchase, your balance will never reach the total it would have in the normal course of things.
Sure, half a decade is a time for celebration. But if you haven’t saved enough, sorry to say the champagne has to go back on the ice, at least for the time being.
With so many tips and strategies on money mistakes to avoid, planning for retirement in your 50s could seem a little daunting at first. The thumb rule is to keep saving as much as you can and reduce spending.
Check out your savings and follow the above tips. There’s still time left to change any bad habits, so that you can be comfortable when you retire. This is your wake-up call, so don’t put it on snooze!!