What To Do With Your Finances In Your 50’s

finances in your 50's

Money Smarts For Your 50’s!

In your 50’s many people are still working full time and enjoy a higher salary than when they were younger. It’s an important time to make smart money decisions with your finances in your 50’s.

Here are a few tips about smart moves concerning money your owe and money you earn.

finances in your 50's

the plan for what you owe (and own)

1. Start a debt-busting avalanche
Your 50s are prime time to pay down nondeductible debt. That means car loans, credit cards and lingering student or personal loans.

Why now? At this stage, you’re most likely to have the resources to clear the decks. You’ll get the biggest bang for each individual buck by paying off the highest interest-rate debt in your portfolio first, while making minimum payments on the remainder. It’s called the avalanche method, and it gets you out of debt cheapest and fastest.

Expert advice: Don’t pay off the house at the expense of retirement saving. You may end up with no mortgage but zero cash.
If you have a credit card charging you 19 percent interest and a car loan at 4.1 percent, throw every extra dollar you have at the higher rate. Once the highest interest-rate debt is retired, move on to the next highest. (To run your own debt-free calculation, try the Credit Card Avalanche Calculator at JeanChatzky.com.)

2. Lock in low rates
You can speed your debt-free quest by reducing interest rates where possible.

In June, the average rate on a 48-month new car loan was 2.57 percent, per Bankrate.com; for a used car, it was 2.7 percent. The Capital One Platinum Prestige credit card is offering zero percent interest through September 2014, while Discover’s new “it” card touts zero percent for 14 months. You’ll likely need a credit score over 720 to qualify for such rates.

Coming up short? Pay your bills on time, use no more than 10 to 30 percent of your available credit and don’t close old credit cards.

3. Make a move on your mortgage
It’s easier to sleep when the roof over your head isn’t going anywhere.

“The happiest clients are the ones who go into retirement completely debt-free, including the mortgage,” says financial planner Bill Losey, author of Retire in a Weekend.

If your interest rate is 4.5 percent or higher (as of December 2012, 45 percent of the nation’s first mortgages have interest rates above 5 percent, according to CoreLogic), consider refinancing, says Keith Gumbinger of mortgage-information website HSH.com.

Act fast, as rates have been rising (the average rate on a 30-year fixed-rate loan topped 4 percent nationally in June). For timing purposes, a 15-year loan is better than a 30, but payments will be significantly higher. You can turn a 30-year loan into a 23-year loan just by making one extra payment each year. But don’t pay off the house at the expense of retirement saving. “You may end up with no mortgage but zero cash,” Gumbinger warns. “That’s foolhardy.”

the plan for what you make and save

1. Upsize your income
Yes, these are supposed to be the prime earning years. If your current paycheck isn’t living up to its end of the bargain and a raise isn’t likely this year, think about adding part-time work: Even modest income gains at this point add up over time.

Say you started investing an extra $200 a month in a diversified portfolio earning 8 percent annually. By 70, that could be over $100,000 in your retirement coffers.
– via AARP

Make The Most Of The Time

If you are 50 or approaching 50, you want to make the most of your earning years before you retire. Whether you have saved all of your life or are just realizing you need to get set up for retirement, here is some good advice about making the most of every earning year in your 50’s.

If You’re Behind, Catch Up the Smart Way

Many people in their 50s have a lot of catching up to do when it comes to setting themselves up for a successful retirement. Smith also suggests beefing up your nest egg by taking advantage of retirement catch-up contributions. “The IRS retirement plan contribution limits are higher for folks who are 50 or older, so you can contribute more money to your 401(k) or IRA each year.”

Moneylend.net spokesperson Dan Blacharski says to beware of extreme advice and instead allocate money in smart ways. “First of all, don’t panic and fall victim to the ill-informed advisors who say you need millions of dollars in the bank. On the other hand, don’t go to the other extreme and succumb to false hope given by armchair advisors who tell you that anything is better than nothing – saving your spare change in a jar, or throwing a hundred dollars a month into a retirement account you started at age 55 isn’t going to get you very far. Simply setting a realistic retirement savings goal is the most important actionable step. Determine how much you will need when you retire, subtract what you will get from Social Security and any existing pensions, and calculate what the difference is per month and go from there.” He added, “Figure the tax benefit you will get from contributing to your IRA, and be sure to include the saver’s credit (worth up to $1,000) if you are eligible. Taking advantage of those tax benefits will get you a bigger tax return, but don’t use that tax check as a windfall. It’s just your own money being returned to you by the government, after all. Instead of using it to buy luxuries, put your refund check back into your retirement account as an extra contribution.”

Kevin Gallegos, vice president of Phoenix Operations at Freedom Financial Network, suggests seeking ways to earn additional income. “There’s no magic bullet if you don’t have enough money to retire. It may mean NOT retiring as soon as you intended from your current job. Or it may mean starting an encore career or taking a part-time job. For those who are close to making it, it often is possible (with determination) to generate an extra $1,000-$2,000 during the year by doing things like cleaning out the house and selling unneeded items on eBay, holding yard sales, redeeming credit card rewards, and cutting the budget. The list goes on, but you get the idea.”
– via ZING Blog by Quicken Loans

Are you on track to have a solid retirement?

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