Assessing Your Finances at Age 50

The following is a guest post from Marotta Wealth Management.

I'm turning 50 this week, probably the most significant milestone after birth. It's a good time to assess progress on all fronts--physical, emotional, spiritual--and of course financial. If you are close to either side of 50, I'd like to outline the ideal scenario to help you make your own financial assessment.

We should have been saving 15% of our income regularly. Even if we don't want to retire until age 70, by 50 we should be well on our way toward securing our retirement. We have managed to save about eight times our annual lifestyle spending. With a $100,000 per year lifestyle, that means we should have saved about $800,000 toward our retirement.

Our savings should be in after-tax account such as a Roth or taxable account. Pre-retirement accounts must be discounted by about a 30% tax rate. Thus $800,000 in after-tax dollars is equivalent to about $1.14 million in traditional retirement accounts.

We are probably at the point where our children are in college or have recently graduated. When college funding is complete, it's time to reevaluate and perhaps drop term life insurance coverage depending on our individual circumstances. We purchased the insurance to make sure our children would have enough money to complete their education. When term premiums rise and college accounts are fully funded, we should probably drop our coverage.

Our estate plan should be in place and fully implemented. Various assets are handled differently. A thorough review at age 50 is in order to ensure the titling and beneficiary designations are correct on each asset from our Roth account to our Health Savings Account.

If we haven't been saving enough or were not invested wisely, we have one last chance after children and before retirement to catch up. Age 50 is the first year we are allowed to take advantage of increased savings and catch-up provisions. Maximum savings in a 401(k) or 403(b) account increases from $16,500 to $22,000 at age 50. Roth contributions also increase from $5,000 a year to $6,000. If we don't have eight times our lifestyle spending saved, now is the time to press these limits.

Saving well is half the battle; investing well is the other half.

At 50 we still have a significant amount of time before retirement. Even if we retired early at age 62, we would still have several years of growth before we needed to start taking withdrawals. At age 50 and even well into retirement our portfolio should still be invested aggressively in equities. An average asset allocation might put 81.6% in appreciating equities and only 18.4% in stable fixed-income investments.

A typical asset allocation at age 50 might be 3% short money, 12.4% U.S. bonds, 12.4% foreign bonds, 31.2% U.S. stocks, 35.3% foreign stocks, and 15.1% hard asset stocks.

At 50, men have an average life expectancy of 28 more years. Women get an extra 4 years. If we are fortunate, those numbers will be even greater. Age 78 is average, but with healthy life choices and medical advances, we may enjoy an even longer life. Those of us with the longest 20% longevity will live well into our 90s.

Of course life is too short to ignore meaning at any age. But for many people 50 is a milestone that reminds us to stop and reevaluate. There is still time for a whole new life of significance.

If we've been careful in our savings we could retire at age 50 and pursue a new calling regardless of its potential pay. We could retire at age 50 if we could live off 3.64% of our net worth. To retire with a $100,000 per year lifestyle we would need $2.75 million.
Financial independence can open exciting possibilities that were otherwise out of the question. If we don't need the money, we are free to do anything with our lives. People of purpose usually don't choose 28 years of recreation. Not when we finally have the time and the wisdom to make a difference in the world.

Counting retirement as a new career is a perspective we encourage. Beth Nedelisky and I teach an Osher Lifelong Learning Institute course each spring, "Financial Planning for Success and Significance in Retirement." In the first class we explore finding meaning in retirement and defining success. We use Marc Freedman's book "Encore: Finding Work That Matters in the Second Half of Life" in the class. His book encourages everyone passing 50 to find their calling in the second half of life and focus on what matters most.

I asked Freedman what he considers the most significant aspect of those over 50 finding a calling for the second half of their life. He answered, "When you reach the point in your life where you can celebrate the freedom to work instead of the freedom from work, that’s success. If just a fraction of people in the second half of life turn their experience, time and talent to our nation’s most pressing challenges, imagine the progress we could make."

Although you can have that attitude at any age, it is especially powerful when redefining the second half of life.

Comments

[Sunil from The Extra Money Blog]

"When you reach the point in your life where you can celebrate the freedom to work instead of the freedom from work, that’s success. If just a fraction of people in the second half of life turn their experience, time and talent to our nation’s most pressing challenges, imagine the progress we could make."

why toil and wait all the way till 50 when it can be expedited?

why wait to reevaluate at 50 when it should be an ongoing process?

[Jeffinwesternwa]

Well not bad article,... I retired at 47 (financial planner, sold out my practice) with aprox $2.85M~ net worth, paid taxes on some of it (deferred comp), lived on some of it until the typical over $100K Federal tax bill subsided) built a semi-custom small townhome, a new Jeep and haven't looked back. Conservative net worth STILL over $2.25M @ 50 and pension income (military retirement and VA disability) is MORE than enough to live on without the investments, ...so travel, fun and daily exercise and healthy habits will hopefully allow me to attempt to see 100 healthy years....have ALL the deferred money (about 25%~) in a VARIABLE ANNUITY (love the new VA's and all the living benefits you can buy them with) extremely diversified managed stock funds (about 33%), life insurance (yep, whole life!) only 2%, real estate 10%, CD's and money markets the rest, all "buckets" for different needs/times....bliss

[MBTN]

I don't like this article at all. Too many examples of specific advice (ex: should be in Roth IRA or taxable account, 81.6% in appreciating assets) which will not apply to everyone. Bottom line is that you can't rely on a general article like this for advice on your specific situation. You need to educate yourself so that you can determine what makes sense for you!

[Angie]

So you are saying you have a 100k /year lifestyle. You live in some midwestern state I forget which. Yet you were complaining about the couple in DC one of the top ten most expensive cities in the US who were devastated about thinking of moving their income to 100k? Please explain this to me?

[Richard Hurt]

Investing wisely - now there's the challenge for today! Good thought provoking article. I am north of 50 but am retiring early to pursue other things from which I don't have to worry about how much I make. I can just enjoy what I am doing. I do agree with the one comment that this evaluation should start early and continuously.

[Mary Kate]

Angie,

I believe the article is a guest post.

[Budgeting Money]

why toil and wait all the way till 50 when it can be expedited?

[George]

If Im 50 and I needed to have $800,000.00 saved by this time, I would have had to save over $25,000 from age 21 on (Average S&P ajusted return for this period is approc 7.52%). From 1980 to 1990 average wage was between $20,000-$40,000. Seems highly unrealistic. Really almost impossible.
It would be nice to see reality in these articles. It is very important to evaluate on an regular basis how we are progressing in our financial planning and growth, but if the message is unrealistic then articles like this accomplish little.

[FMF]

George --

I think you need to re-do your math. $25,000 for 29 years is $725k assuming ZERO return rate. If you get a return rate of 7.52% on your money, my numbers say you simply need to save $8,000 a year starting at age 21 to reach $800k by 50. Anyone get anything different?

[MgM]

It is rare when a single article will cover all situations. Commonly, when annual withdrawals from investments are mentioned there is no mention of a decent pension (and most calculators do not factor it is either). Similar to that Progressive Insurance commercial that is airing, "My wife won't let me retire!" Although I (age 58) have the blessings of my financial advisor and my tax man, the mere mention of my retiring sends her into fetal shock (although she retired last October). I am hoping she just needs adjustment time cause this old boy is tired of doing same basic thing for 34 years now. Advice?

[Marty Fogarty @ Veterans Loans]

We should always plan ahead of time and set reasonable financial goals in order to learn how to manage our money carefully to achieve them. Saving money to retire, for example, is something that not everyone prioritizes, but everyone needs. So, I think that it should be done from an early age to make sure that the future will not present difficulties.