Retirement Planning in Your 50s and 60s

In an ideal world, we’d all follow the textbook advice for retirement planning by saving aggressively in our prime working years with a diversified portfolio of
investments in both pre-tax and after-tax buckets, coupled with sound strategies for insurance, long-term care, and contingency planning.

But we live in the real world where, according to the U.S. Census Bureau, 50% of women and 47% of men between the ages of 55 and 66 have no retirement savings. Don’t despair. Whether you are in the “have savings” or “no savings” group, it’s never too late to start a plan.

“Even though in a perfect world it’s ideal to start talking to a financial planner as soon as possible, it’s even more important for people who haven’t talked to a financial planner to understand their current financial picture in relation to their retirement goals,” says Mark Borak, a financial planner and wealth management advisor at Baystate Financial in Bedford.

“If someone has not set themselves up well for retirement, there is almost always time to make a meaningful difference,” he says. “Often times, clients that come in fearing the reality of their situation are pleasantly surprised with their retirement analysis and have a clear roadmap of how to reach the retirement they want.”

Eric DeLorey, a certified financial planner with Edward Jones in Rochester, takes a similar view when it comes to those with little or no nest egg in their 50s and 60s. “There can always be a plan put in place even if you are not the most well-prepared person,” he says. “Sometimes the most rewarding part of my job is helping that person coming to me with their 1,000-piece puzzle that they think is a mess, and then you do the puzzle and come up with that plan that prioritizes the most important things.”

The Importance of a Plan
Whether you have been saving for years or just started, planning is valuable. “If someone at 50 or 60 thinks it’s too late, I’m thinking ahead to 80 or 90,” says DeLorey. “In my head, we still have 20 or 30 years to plan. Sometimes just these Social Security decisions can have thousands of dollars of impact for years to come.”

According to AARP, it’s never too late to make a plan that includes continuing to work, lowering your cost of living, saving when you can, avoiding credit card debt and delaying Social Security benefits to get the largest payment possible. “They think they are going to have to work for forever; there is no way I can retire,” says DeLorey. “So, to see the look on their face when they realize, ‘I can pull this off,’ is quite rewarding.”

So-called “catch up” contributions are a great idea for those who are able to save more as they are nearing retirement age. When you reach the age of 50, you may be able to contribute extra earnings to “catch up” on your retirement savings.

“People who have access to employer-sponsored retirement plans may be able to take advantage of catch-up contributions starting at 50,” says DeLorey. “Individual retirement plans like Roth [after taxes] and traditional IRAs [before taxes] offer the same benefit.”

Distribution Strategies
For that other half of the aging population which has benefited from the run-up in real estate values and a soaring stock market, the focus is on distribution strategies to determine the rate at which you start taking distributions.

“One of the most important retirement concepts to consider between 50 and 60 years old is the distribution strategy for retirement assets,” says Borak. “This is because factors like required minimum distributions, tax treatment of retirement buckets, Social Security, and much more make distribution strategy more complex and more demanding than accumulation strategy.”

Social security concerns are one of the most common reasons aging adults seek the advice of professionals. Social Security is a personal decision and one of the important financial decisions someone will make when preparing for retirement, according to DeLorey.

“When to take social security is not a decision you should make because your friend or family member is doing so. The rules are complex with multiple variables,” he says.

You can begin receiving Social Security as early as age 62. However, your benefit, as well as the survivor benefit payable to your spouse, will be permanently reduced if you take it early.

“If you delay taking Social Security benefits, you can accrue delayed retirement credits until age 70,” says DeLorey. “These credits have the potential to increase your base benefit by a certain percentage determined by your year of birth. You can receive your largest benefit starting at age 70.”

The 4% Rule
One rule of thumb in the financial planning industry is the 4% rule, which basically states that if you withdraw 4% of your nest egg and only 4% each year, you have a good chance of not outliving your money, especially if you have recurring income in those years, such as Social Security, annuity payments or pension payments.

For certain clients, based on their goals and retirement objectives, an annuity can be an appropriate solution for reliable income to supplement Social Security, according to Borak.

“This can help the client reduce the risk of running out of money,” he says. “They key is striking the balance between market exposure to protect purchasing power throughout retirement and reliable income to provide peace of mind and permission to spend in retirement.”

Retirees who rely entirely on savings and don’t have guaranteed recurring income other than Social Security as part of their plan are more exposed to market risk, as interest rates and stock market returns fluctuate.

On the other hand, if your entire retirement nest egg is all in fixed income, your purchasing power won’t keep up with inflation, thus the critical need for diversification and a sound distribution plan.

Failure to Launch
In addition to credit card debt, inflation and market volatility, the other top threats to retirement income are unexpected health care costs, poor tax strategies, and lack of long-term care coverage. But a threat that has become more common in recent years is what is known in psychological jargon as “failure to launch.”

It’s not a true diagnosis but is used to describe the increasing number of young American adults struggling with the transition to adulthood. According to the Pew Research Center, as of 2016, 15% of 25- to 35-year-old millennials were living in their parents’ homes, a higher rate than any previous generation, and a rate that’s increased since COVID.

In addition to providing support, parents are often cover college costs and sometimes help with down payments on homes and cars, and otherwise drain retirement savings to support their
adult children.

“As financial planners, although we cannot alter or change a situation in which pre-retirees or retirees are supporting a dependent adult child, we can empower clients by providing a clear picture on the short-, medium-, and long-term impact of providing the support,” says Borak.

“Our duty is to give clients the information and clarity they need to make the best decisions now and in the future for their themselves and the rest of their family,”
he continues.

Helping Mom and Dad
Aging parents can also complicate financial planning for the 50- to 60-year-old cohort. “How much can I give to my kid without blowing up my own plan? How much can I help my parents without hurting my own plan? I have an established process that I use to help people figure out what’s most important to them,” says DeLorey.

For many, preparing for the care of elderly parents is often accompanied by loss of time and money and, of course, added stress.

“My goal for clients is to institute financial planning at the family level rather than just the individual level,” says DeLorey. “Having these conversations before the need to care for elderly family members arises can save money and stress in the long run.”

It’s never too early to start planning for elderly care for parents. AARP and others provide online tools for caregivers. Even in the absence of long-term care insurance, it is important to start a conversation and figure out what could be needed to cover the ever-increasing costs of elder care.

Retirement planning these days, with longer life expectancy and more active seniors, is not solely a matter of accumulating wealth, but in many cases also involves a second career or pursuit of a lifelong dream.

“I love having those conversations with clients and partnering with them to find out what’s most important to them,” says DeLorey. “It may be earning a little extra money doing something they love for the next 10 years. And sometimes it isn’t about the money; sometimes they’d just love to go volunteer at the animal shelter.”