03 May If You’re in Your 50’s, Consider these Investment Tips
If you’re in your 50’s, you’re likely enjoying peak earnings in your chosen career. However, while you probably started saving for retirement decades ago, you may be finding it difficult to make significant investments with other expenses—such as paying for the kids’ college and whittling down your credit card and mortgage balances—demanding so much of your income.
While a commonly accepted rule of thumb is to stash away at least six to eight times your annual salary by age 50, most seniors are lagging far behind this goal. According to one analysis of the retirement savings of Americans between the ages of 50 and 59 years old, the average 401(k) balance is only $174,100. The average annual income in the U.S. is about $48,516, meaning these seniors have only saved enough to cover about three and a half years of expenses if they maintain their current lifestyle.
If you’re among this group, don’t panic quite yet. The right investment strategy can help you get back on track. Consider the following suggestions as you make your next moves.
Use a Bucket Approach
The number of years you have left to save varies depending on the age at which you hope to retire. However, whether that glorious day is only five years away or as far off as 20, you’d be wise to segment your assets in such a way that you can protect your retirement income from the ravages of market unrest. At Ortiz World Wealth, we use a four-bucket approach to facilitate this investment strategy.
It’s a method in which you build a diversified portfolio based on various timeframes. Assets that won’t be needed for several years or more can be parked in a diversified pool of long-term holdings (segmented into strategic buckets), while a cash buffer (bucket) is positioned to provide peace of mind during periodic downturns. You can learn more about the Bucket Investment Approach here.
Take Advantage of Employer 401(k) Plans
Many workplaces include employer-sponsored retirement plans in their benefits package. Some even match employee contributions up to a certain threshold. If you haven’t been utilizing this savings vehicle, now is the time to catch up. You can contribute up to $19,500 to your 401(k) in 2020 if you’re under 50 or up to $26,000 if your age 50 or older.
Invest in a Roth IRA
Withdrawals from Roth IRAs are tax-free. Though contributions are taxed, these are still worthy investment vehicles for savers of all ages and a strong source of retirement income. The annual Roth IRA contribution limit for workers age 50 and older depends on your income. If you earn less than $124,000 annually, you can contribute $7,000.
Keep Calm and Save On
If you’re worried you don’t have enough time to catch up on your retirement investments, don’t let that fear keep you from making progress. Although certain types of investments, like stocks, can be unpredictable, given the average retirement age of 65 to 67, you likely still have 10 to 15 years to recover from any potential losses. That said, COVID-19 is presenting challenges for many investors who may have been planning to retire soon. This once in a lifetime event has exposed some retirees to a cash crunch they didn’t plan for in advance. The bucket approach mentioned earlier can help you both save for the future and plan for the unexpected.
Enlist a Qualified Financial Advisor
Don’t let your 50’s become a time of financial fear and anxiety about the future. No matter where you are along your retirement savings timeline, a qualified financial advisor can help you reach your goals.