When building wealth, your 50s are the prime of your life. A period of declining debt, peak earnings, and a significant expansion of your net worth. At least, that should be the plan. To take advantage of this opportunity, you should understand key wealth-building strategies for your 50s to help you maximize your highest-earning years.
1. Analyze Your Assets & Liabilities
Earlier in your career, your ability to save might have been limited by student loans, car loans, mortgages, etc. In your 50s, though, your debt should begin to drop. On the flip side, your savings should be growing significantly. This trend can feed on itself: the more you retire your debt, the more you can save. This is the basis for wealth-building strategies for your 50s to help you maximize your highest-earning years.
List your assets and liabilities, including your bank and investment accounts and outstanding balances on mortgages, car loans, etc. Track and monitor your net worth to plan to have as little debt as possible in retirement. Why put all of your hard-earned savings towards debt in retirement? Don’t you want to put it toward hobbies, travel, or living expenses? Now is the time to finalize your retirement debt reduction plan.
2. Scrutinize Expenses
Start tracking your essential and discretionary expenses using one of the many available apps. Expenses such as housing, auto, and health are essential. Many others, like vacations, entertainment, etc., are discretionary. You must understand your expenses to determine how much you will need for your retirement spending plan. This should be an ongoing exercise that starts well before retirement.
To take it a step further, estimate the retirement income you expect from various sources, such as pensions and Social Security. Then, calculate the difference between your monthly living expenses and that retirement income. The result will be the amount, before taxes, you’ll need to withdraw from your retirement savings.
3. Taxes
There are proactive ways to manage and help reduce your lifetime tax burden. Should you contribute to pre-tax or Roth retirement savings, or consider converting pre-tax retirement plans to a Roth IRA? Do you have an HSA, and if so, are you maxing it out? Are you doing all you can to reduce your lifetime tax liability? Keeping up with tax codes can be challenging, but there may be strategies that make sense for you during this stage of your life.
4. Estimate your Social Security benefits
The Social Security Administration calculates your monthly Social Security benefits based on your career earnings. To view your estimate, set up an account at ssa.gov. Sign in annually to verify these figures for accuracy, as they will determine your benefit.
While this projection is subject to change based on your future earnings, by your 50s, you should have enough earnings history to determine your Social Security benefit accurately. This projection can also help you consider the various Social Security filing options and which is best for you (and your spouse).
5. Retirement vs. Education Funding
You are at the point where your children may be furthering their education. How much you want to help them, and of course, how much you have saved over the years, is a decision that may affect your retirement.
We tell our clients that there is no wrong answer to this decision; they must do what helps them sleep better at night. If that means retirement is delayed, and you’re okay with that, that is the correct answer.
However, we suggest prioritizing retirement and helping children with student loans later. This allows you to build retirement savings while still helping with education costs, only at a later date. Check out our post on Saving for Retirement Versus Higher Education.
6. Review Savings & Investment Allocations
Are you saving at least 20% of your income for retirement? That’s right; by the time you’re in your 50s, you should save 20% of your income. Don’t forget to take advantage of the catch-up provision for retirement accounts. If you are 50 or older, you can contribute an extra $1,000 to an IRA above the $7,000 (2025) limit or an additional $7,500 to a 401(k) above the $23,500 (2025) contribution limit.
Review your investment allocation as you near retirement. There are two items to consider
- Risk Tolerance: How comfortable are you with potential loss?
- Risk Capacity: How much risk can you afford to take? This answer is different for everyone and depends on your retirement income needs, time horizon, and current level of savings.
As you approach retirement, your investment allocation must match your comfort level and capacity. During the last recession of 2008, too many retired folks were too aggressive when they couldn’t afford to be. This resulted in significant losses, unfortunately forcing many people to unretire. Trying to reenter the workforce during a recession is not easy or enjoyable.
7. Review Insurance Policies
Review your insurance coverages to determine if they are adequate for the home stretch of your working life.
Life Insurance: For most people, term life insurance is usually the most affordable option. Once you reach your 50s, taking another look at your coverage is a good idea. Your financial responsibilities might be changing. Maybe your kids are grown, or you’ve paid off some debts. Term insurance still works well for many folks, but this is also a smart time to consider whether a different type of policy could better fit you. Remember that premiums tend to go up quite a bit as you get older, so reviewing your options now can help you make the most cost-effective choice.
Disability Insurance: Your 50s can be your peak earning years, but also when health issues become more likely compared to your younger years. Disability insurance protects your income if you’re unable to work due to illness or injury. Think of it as paycheck insurance. You have insurance to protect your home, car, and life, so why not your earnings? Review any employer-provided coverage and consider supplemental policies for your needs until retirement age. Remember that waiting periods, benefit amounts, and definitions of disability vary significantly between policies.
Long-Term Care Insurance: In our financial planning scenarios, we assume you will need two years of long-term care. Do you have a plan for your care as you age? Will you be able to self-insure, or should you consider long-term care insurance coverage? Long-term care insurance is often pricey. The premiums must be paid to continue coverage, even during retirement. And yes, the policy premiums usually increase over time. It’s tough because those who can afford the ongoing premiums are the ones who can often self-insure.
8. Review & Update Estate Planning Docs
If it’s been a while since you last reviewed your estate plan, now might be a good time to refresh it. Look at your will, financial and medical powers of attorney, healthcare directives, and other necessary paperwork. Your financial situation may have changed, so it’s smart to make sure your plans still fit your current needs and consider whether you should set up any trusts for your loved ones.
While at it, double-check the beneficiary designations on your accounts to ensure they reflect your current wishes. It’s also a good idea to name backup (contingent) beneficiaries.
Lastly, keep a list of your account numbers and passwords somewhere secure. If something happens to you, your executor will need this information to care for your estate.
9. Meet with an advisor and set a tentative retirement date
Completing a written plan will provide a psychological boost. Even if you have created your own financial plan, getting a second opinion is a good idea. A CERTIFIED FINANCIAL PLANNER® professional will have objective, unbiased opinions and see things you do not. You can even run different scenarios to see what could happen within a best-case and worst-case event. The Financial Planning Association (FPA), National Association of Personal Financial Advisors (NAPFA), or the CFP® Board of Standards can provide a list of financial advisors.
Implement the wealth-building strategies for your 50s
You are running out of time to get your finances in order before retirement. You must use your higher income to strengthen your savings and reduce debt with these wealth-building strategies for your 50s to help you maximize your highest-earning years. You will thank yourself when you retire.
