The Worst Financial Mistake People In Their 50s Tend To Make
A 2022 Gallup poll on American retirement trends found that people between the ages of 55 and 74 are retiring in fewer numbers compared to the early 2000s, with the largest differences reported with early retirees. Compared to in 2002 to 2007, when 19% of Americans aged 55 to 59 years old retired, Gallup found that only 11% of Americans in the same age cohort were choosing retirement in 2016 to 2022. As for those aged 60 to 64 years old, the difference was 9% — a drop to 32% from 41% (in 2002 to 2007).
This amounts to the average age of retirement shifting upwards from 57 in 1991 to 61 as of 2022. A 2024 AARP survey, meanwhile, may provide some answers as to why that is. The survey found that 20% of Americans 50 years of age and over lack retirement savings, and 61% of us have concerns we won't have enough saved to retire. Credit card debt, the cost of basics (like food and housing), and inflation rising faster than salaries, has 26% of the unretired population seeing retirement as a pipe dream.
The question, when is the best age to start saving for retirement, may cause anxiety if you're in your 50s and fall into the category of no retirement savings. However, the worst financial mistake you can make is believing you're doomed to work until you die because you haven't been in a position to (or have just neglected to) build a nest egg for retirement. There's still time to save. If you've just blown out 50-odd candles on your birthday cake, there is still hope for you, but you need to get on it now. Here are some quick ideas on how.
Retirement savings options at 50
Your 50s still offer a window of opportunity to build up your retirement, especially if you contribute to a 401(k), 457, or 403(b) at work. Hopefully, your 50s have positioned you to be at your maximum earning potential, allowing you to increase your retirement savings or max out 401(k) contributions. As of 2024, your maximum contribution amount adjusted to inflation is $30,500 — the equivalent of the $23,000 allowed for people under 50 plus $7,500 for anyone over 50 playing catch up.
If you're worried about how to get a good rate of return for your 401(k), consider the allotment of your contribution as it relates to stocks, bonds, and cash equivalents, and refresh your portfolio if any of your mutual funds are 20-plus years old. Further, if your retirement plan has target-date funds — a resource that automatically adjusts your contribution allocations based on your retirement schedule — look into whether or not that makes sense with the additional fees. IRAs, meanwhile, both traditional and Roth, can bolster your retirement savings if your workplace doesn't offer a 401(k). Note, your combined contribution to IRAs (both traditional and Roth) per year is $8,000 (as of 2024) if you're 50 or older.
Another option? Between long-term care insurance, which covers assisted living and at-home care services in your retirement years, and life insurance retirement plans (LIRPs), which allows you to borrow or partially withdraw the cash value portion of your plan tax-free, insurance plans can also help.
The tax implications of retirement
The old saying goes, the only two things you can be sure of are death and taxes. As you avoid the mistake of believing it's too late to save for retirement in your 50s, you'll also need to think about the tax implications of your retirement once you do retire. One way to lower your exposure to the latter is to mix up your investment vehicles between your 401(k), IRAs, and non-retirement brokerage accounts.
A traditional IRA allows you to defer paying taxes until you retire, and since your future income bracket in retirement will be lower, you will likely take less of a hit on your taxes down the road. A Roth IRA, on the other hand, will require you to pay the taxes upfront but won't tax your retirement income later. Your 401(k) will also be taxed within your tax bracket as regular income, instead of the lower capital gains rate. The reason to diversify these streams with non-tax advantaged accounts is the capital gains tax paid on earnings through brokerages is lower.
If you want to build a strategy to avoid giving more of your retirement back to the state, consider a move, now or in the future, to a relative tax haven. The U.S. boasts a few states where the tax burden is lower than average, particularly for retirees. Of course, you will want to consider other factors like access to health care, community, culture, and safety, all of which come at their own additional cost in terms of finances and well-being. We've done the work of compiling a list of every state without an income tax so you don't have to.