We’ve all heard of Freedom 55. The connotation is to hopefully be in a position to retire at the age of 55. I know a lot of people reading this right now would label this as wishful thinking. Well, just a minute, this all depends on our own situation. There are people, with proper planning, where this is an option. For many, it may not be. Yes, sometimes life gets in the way. It is also a matter of time.
Speaking of time, I was in a restaurant recently and saw a sign at the table advertising a senior’s breakfast special. I thought for a moment and asked the server who they consider a senior to be. She responded 55. Notice a similarity? This actually caused me to pause for a moment. I’m 55. I guess in some ways. I’m considered a senior. Time catches us sometimes. This led me to this post.
The average retirement age in Canada differs from province to province, ranging from 62 to 65. Some people even delay retirement until their 70s. But, to be ready, the decade before retirement – your 50s – isn’t time to coast like a teen suffering from senioritis. You should still be pursuing your dreams – and taking important steps to financial freedom. Maybe 55 after all.
Sometimes people don’t really know how to assess their future needs and don’t want to talk about it. But a lot of times there are opportunities at that age to really move the needle on your retirement planning. Remember, whatever amount you’ve saved will need to be combined with other sources of income in later life (i.e. CPP) and stretch across the remainder of your life. The good news is that your 50s are an ideal time to turn the notch up on your savings.
This is the point when you could be hitting your peak earning years, and your expenses may be declining if you’re empty nesters. If there’s a gap between what you’ve saved and what you need, you’ve probably got another 10 or 15 years to fill it. The idea, basically, is to determine what you want your level of lifestyle to be in the next chapter of your life, and then take the time to plot out how to get there. Be as detailed as you can be about what you want the next phase to look like. People who have a really good idea about this have more success than those who don’t.
Why your 50s are important
As you turn age 50, you should apply the same focus on pursuing your passions to managing your finances. You’ll likely retire from your current job in just the next 10-15 years. And, that transition may happen voluntarily or not.
In your 50s, you have time to either catch up or boost your savings. Whether you choose to continue to work in retirement or not, is your choice. You still need to take the appropriate steps now to ensure you will have enough income to support you for the next two or three decades, or longer.
Steps to refocus financially
The good news is that whether you’re just beginning to save for retirement or have been since the first day on the job, the steps you should take are essentially the same. Here’s help on refocusing your finances in your 50s:
Determine what you want to do in retirement
What are you going to spend your retirement savings on? The answer may be harder than you think. You may have big dreams, such as traveling or writing a book, but they might not be enough to keep you busy. How are you going to replace those 40-50 hours per week that you currently spend working? Because of rising life expectancies, you can reasonably expect retirement to last 20-30 years. That’s a lot of free time. You don’t want to make the mistake of spending money frivolously in a pursuit to just find out what makes you happy in retirement.
Get your estate in order
Whether you plan to leave a legacy or not, there are two crucial estate steps you should take: create a will and designate a power of attorney. It’s never too early to take these steps because something could happen to you at any moment. These documents can help protect your assets and your family’s well-being. From choosing the right age to claim CPP to figuring out where you want to live, there are many more important financial steps to take in your 50s to help you realize your dreams.
Did we mention savings?
It can be enlightening to see how much you’re spending that you really could be saving. We like to see people save as much as possible in their 50s. Of course, finding extra money to funnel into those retirement accounts often means changing your spending habits or squeezing extra money out of your budget. Taking a close look at where your money is going can help identify extra cash. It can be enlightening to see how much you’re spending that you really could be saving.
Give your investment portfolio a checkup
If you haven’t checked on exactly how your retirement savings is allocated among different investments, now’s an important time to revisit your portfolio. In your 50s, two things become more important: your risk tolerance – how well you stomach the value of your investments going up and down – and when you anticipate taking distributions from your portfolio. If that’s going to happen in seven or 10 years, you might want to put some money in safer investments so you know you won’t have funds subject to the market volatility we’ve got right now.
Get rid of really bad debt
If you have credit card debt, aim to get it paid off as soon as possible. Credit card debt is really an issue for many people. It’s a pure cost, and it can be a high cost. And it’s a big impediment to being able to save. The average interest rate on credit cards is pushing 17% and for many it is higher. By comparison, the average rate on a 5 year fixed mortgage is about 4.5%. Even lines of credit or loans are generally lower. In other words, credit card balances typically are far more expensive than other forms of debt. There’s nothing wrong with taking vacations and buying gifts, as long you don’t use plastic to pay for it and pay a huge interest rate.
Health-care savings
While many people assume they’ll just keep working full-time long past the average retirement age of about 63, the risk of health issues interfering with those plans becomes greater as you age. In fact, the average 65-year-old couple today will spend $280,000 on health care over the remainder of their lives. While you get to sign up for Trillium in Ontario at your 65th birthday, it doesn’t cover some medical needs in later life, including dental, vision and most long-term care.
New insurance consideration
Speaking of long-term care, when you reach your 50s, it’s a good time to think about how you’ll pay for it down the road. Someone turning age 65 today has nearly a 70% chance of needing some form of long-term care in their remaining years. On average, women need care longer (3.7 years) than men (2.2 years). If you don’t want to rely on family members or spend down your assets, insurance for long-term care can be an option. While some people turn to policies that exclusively cover those costs, there also are hybrid options that combine life insurance with long-term care coverage.
The bottomline
The point is that in your middle and later years, there is still so much more you can accomplish. The world is your oyster. And, the same goes for your retirement savings. Even if you’re far ahead of the game or haven’t even gotten started, now’s the time to get financially in shape.
When people reach their 50s, it’s not uncommon for them to realize that retirement, or whatever they choose to call the phase of life that comes after full-time work, is no longer such a distant concept. If you’re in that age group and haven’t yet focused on that looming reality, it’s a perfect time to get serious about planning for your golden years. This is Keeping Life Current.
