If you’re a smart investor, you’re adjusting your investment strategy for each decade of your life. As your earning power changes, and as you get closer to retirement, you should take those factors into account as you decide your asset allocation and your risk tolerance. You can regard your 50s as the home stretch to retirement, and invest accordingly.
Set Your Retirement Date
Gone are the days when everyone retired at 60 or 65. Life expectancy is increasing, and retiring in your early 60s may mean you have 30 more years of retirement ahead of you. This can mean two things. One, you’ll get bored in retirement, especially in the early times when you’re still active and healthy. The second consequence is you can run out of money. So if in your 50s you think it’s realistic to keep working past a traditional retirement date, now is the time to make that plan.
Review Your Needs and Goals
In your 50s you should have a clearer idea of your expected earning power for the rest of your working life. You can figure out exactly how much it is realistic for you to save. You may also have a clearer picture of how much you will need in retirement. If your mortgage is all paid off, that’s good, but you still need to plan for property taxes. If you want to move or downsize, take that into account. Crunch the numbers and work out exactly what monthly income you’ll need. Then multiply that by the number of months you expect to be retired and you’ll know how much you need in the kitty.
When you were socking money away in your investment accounts in your 20s, you could afford to take some major risks. You still had plenty of time to save if things went wrong from time to time, and you could hold the majority of your portfolio in relatively volatile stocks. But your 50s are a different matter. You have a limited number of years to correct any mistakes, and your investment strategy should reflect this. The exact balance of your portfolio between stocks and bonds will depend on how far ahead you are in your saving and your risk tolerance. But you should begin shifting the majority of your investments into lower-return but stable investments.
Repair the Damage
When you calculate how much you will need for retirement you may find you are way behind your goals. If this is the case, you must focus your efforts aggressively on increasing your saving. You don’t have much time once you are in your 50s to ensure you have enough to retire on. Make sure you are taking advantage of all the employer-matching dollars you can in your 401(k). If you don’t already have an IRA, open one now and put away the maximum allowed in your income bracket.