At the beginning of Jimmy Buffett’s book, A Pirate Looks at Fifty, he summarizes his life in four paragraphs of approximately 400 words. A combination of love, work, failures, and success. It is powerful.
I encourage anyone reaching the half-century mark to take a quiet evening and pour yourself a drink. Find a comfortable chair and reflect on the past fifty years of your life. There will be pain, joy, and laughter.
After going through this exercise myself, I found that my first fifty years were remarkably similar to Jimmy’s. Minus the best-selling books, award-winning music, and entrepreneurial super-stardom. But I did win a recreational kickball championship in my forties, so I’ve got that going for me.
This article is not about the past, however. It’s about planning for the future. After the reminiscing, it’s time to look forward.
Hitting the Big Five-Oh!
I’m writing this post because I just celebrated my fiftieth birthday. I managed to make it through the day without crying, but I can’t understand how the time went so quickly. Fifty is here, and it shows. I’ve discovered that when I now go to a restaurant with a large clientele of twenty and thirty-year-olds, I am escorted past the open tables near the front window. I am seated at a dark table in the back, near the bathroom, presumably, so I don’t scare off the young, desirable crowds passing by.
Nervously, I had dreams about the morning of my fiftieth birthday. I would wake to a loud knock at the door and stagger out of bed. I’d groggily answer the door to be greeted by a smiling AARP representative holding a colonoscopy prep-kit. Welcome to fifty and all the wonderful, new experiences it brings!
The morning of my fiftieth birthday came to pass with much less excitement than anticipated, however. Unfortunately, I did let out an old-man groan as I crawled out of bed that was decidedly louder than ever before.
Happy at Fifty? You Might Be Alone
According to leading happiness studies, the magic age of fifty is close to the most miserable point in our lives. (See chart below.) Mid-life can bring intense pressure when there is a delicate balancing act between the needs of our aging parents and the needs of children, who are messily turning into adults themselves. The dreams of youth are slipping away as there is a realization that time is running out to achieve our childhood dreams. Reaching that workplace mountaintop may now be an unrealistic goal.
Depressed? Don’t be. There is hope! Happiness rebounds sharply after mid-life until peaking around eighty years old. Who knew we’d all be deliriously happy in our twilight years?
How can you arrive at this blissful nirvana in good financial shape? Start planning now. It’s never too early, but if you’re fifty like me, it’s time to plan with some urgency.
Fifty is just a number, but don’t tell that to Uncle Sam. He hands out some tremendously valuable gifts, unlike that deadbeat uncle who gave you expired coupons for Perkins on your big day. The government allows you to put extra money into retirement accounts in the year of your fiftieth birthday. Catch-up contributions can be sizeable. In 2020, you can add an additional $6,500 to your 401k, 403b, and 457 plans. Traditional and Roth IRAs allow for an additional $1,000 catch-up, and you can increase Simple IRA contributions by $3,000 more.
These catch-up contributions come at a good time. There are often sizeable expenses that disappear around fifty. Extra savings can be deposited into retirement accounts as children finish college and move out on their own. Additionally, if you’ve sent off the final payment on your home or car, apply the extra cash to your retirement accounts and take advantage of these catch-up contributions.
Your asset allocation decision is very personal. Not only should you take into consideration your future goals and time horizon, but your tolerance for risk is also vitally important.
Make sure your asset allocation isn’t too conservative. There is an old rule of thumb that says to determine your stock allocation subtract your age from 100, but this can often result in a weighting that is not aggressive enough given longevity trends.
A fifty-year-old man or woman can expect to live into their eighties according to the Social Security Administration’s life expectancy tables. But you won’t get the chance to be deliriously happy with the other eighty-year-olds if you haven’t saved enough to live comfortably.
Put forth a concerted effort to calculate a realistic life expectancy. There are dozens of calculators online to assist you that span from simple to complex. Verywellhealth.com has links to four good options. Take into consideration the age of your parents and your overall health. Even if the average life expectancy for a fifty-year-old woman is eighty-five, some will live well into their nineties and beyond. If you must use a rule of thumb, consider subtracting your age from 110, instead, to arrive at a rough stock-allocation estimate.
I am not as opposed to debt as some financial advisors. A reasonable amount of debt at a low-interest rate can be a useful part of your financial plan. However, as you glide by fifty, it’s essential to reevaluate your debt level. A low-interest mortgage is fine. A high-interest credit card loan generated by that spur-of-the-moment jacuzzi purchase, not so much.
Now’s the time to be saving aggressively for the life you desire in retirement. It’s not time to load up on debt. If you have any high-interest debt, focus on paying it off. If the size of your debt load is significant when measured against your assets, reduce it now.
You know that debt we just discussed? A great way to reduce it and increase savings is to downsize. The kids are off on their own, and you don’t need the five-bedroom McMansion anymore. By selling your large home and moving into a smaller place, you can save substantially. A lower mortgage payment, lower taxes, and reduced maintenance expenses are all benefits. You also don’t need as much stuff in your new, smaller home. eBay, anyone?
Are you still going to the vacation home on the lake or using the Harley gathering dust in the garage? Now is the time to reevaluate whether you need all of the expensive things in your life. Sell anything you consider excess and use the money to prop up retirement funds.
If you arrive at a point in life where you are unable to care for yourself, long-term care may be needed. The half-century mark is a good time to think about the need for long-term care insurance, even if you hold off several years before making a purchase. Unfortunately, this is not an easy decision to make.
I usually advise against this insurance for clients who are capable of self-insuring against the risk. Long-term care insurance is full of unknowns that can make policies unattractive. Rates can change dramatically and unexpectedly. The need for long-term care may never occur, or it may be for a relatively short period. Some people may be lucky enough to have a strong family network who they can rely on for care.
Like many things in personal finance, the final decision on whether to buy insurance depends on your risk tolerance. Some people will sleep better at night, knowing they are insured against whatever risk may come their way.
Whether you lean toward insuring or not, now is a good time to take a hard look at the issue. Weigh the pros and cons and decide which direction is best for you. Talk to someone knowledgeable about the trade-offs.
Hopefully, this is something you’ve already considered. No? Now is the time. You’re not getting any younger, and you don’t want the state deciding who gets your collection of Elvis figurines.
The first thing you can do is assign a beneficiary to all of your retirement, brokerage, and bank accounts. This can often be done online and should only take about fifteen minutes per account. Next, make an appointment with an estate attorney who will help you create the necessary documents to ensure your wishes are carried out.
Plan Your Future
So far, we have discussed some rather somber topics. This next part is better. It’s time to decide how you want to spend the rest of your life. How long do you want to work? Where do you want to live? Do you want to travel when you retire?
After answering these questions, you will get a better idea of how much money you will need to save. It will help you make important decisions about your lifestyle. Save aggressively now so you can relax on a beach in retirement? Or would you prefer to work at a job you love well past the average retirement age? Answering these questions is crucial to your retirement planning.
Also, consider different scenarios. What does your dream retirement look like if money is not a consideration? What type of retirement is most likely given your expected savings? What concessions are you willing to make if your nest egg doesn’t grow as much as estimated?
I’m not a physician. I don’t even play one on tv, so I’ll keep this brief. The best retirement planning in the world is useless if you’re not healthy enough to live out your dreams. Exercise and follow your doctor’s advice. Stick to moderation and go easy on that family-size bag of pork rinds. It was meant to be shared.
These topics are not new, and you’ve probably thought about many of them before. However, turning fifty is an excellent excuse to revisit them and nail down a plan for the next chapter of your life. Craft a plan that’s ideal for you and enjoy the journey.
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David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.