Boosting and Protecting Savings in Your 50s

A recent AARP study revealed that 20% of Americans have no retirement savings at all by the time they reach their 50s. And according to Fidelity Investments, for those with savings, the median account balance is just over $70,000. Clearly, more American need to increase retirement savings. But how?

Your 50s are a critical time for retirement planning, and with the right strategies, you can make substantial progress toward the goal of a comfortable retirement. Whether you're ahead of the curve or playing catch-up, here are five steps to boost your savings.

Step 1 - Maximize Catch-Up Contributions

Some retirement accounts have a hidden feature that could help you save thousands more after age 50. It's called catch-up contributions, and it's a game-changer for your retirement savings.

Once you hit 50, the government allows you to contribute more to your retirement accounts than younger workers. This could be your chance to supercharge your savings:

• 401(k) Catch-Up Contributions - In addition to the standard contribution limit of $23,500 in 2025, you can add an extra $7,500 per year to your 401(k) once you're 50 or older. That's a total potential contribution of $30,000 per year. And if you're between the ages of 60 and 63, the maximum contribution increased to $34,750.

• IRA Catch-Up Contributions - If you're 50 or older, you can contribute an additional $1,000 per year - bringing your total to $8,000 annually.

• HSA Catch-Up Contributions - If you have a Health Savings Account (HSA), you can contribute an extra $1,000 per year starting at age 55. This boost is on top of the regular contribution limit of $4,300 for individuals or $8,550 for families in 2025.

If possible, take full advantage of these catch-up contributions. Even if you can't max them out, any increase in your savings rate can make a significant difference over time.

Step 2 - Reassess Your Investment Risk

As retirement draws closer, your investment strategy needs to evolve as well. For example, a more aggressive approach that served you well in your 30s and 40s may no longer be appropriate. This decade is about finding the right balance between asset growth and protection for what you've already saved.

• Review Your Asset Allocation - Your 50s are typically a time to start shifting towards a more conservative investment mix. However, this doesn't mean moving entirely to low-risk investments. You still need growth to outpace inflation and fund a potentially long retirement.

• Consider the "Rule of 100" - This rule suggests subtracting your age from 100 to determine the percentage of your portfolio in stocks. For example, at age 55, you might aim for 45% in stocks and 55% in bonds and cash. However, this is just a guideline - your personal risk tolerance and financial situation should guide your decisions. And with people living longer, some experts suggest making it the "Rule of 120" instead.

• Diversify Your Portfolio - Ensure your investments are well-diversified across different asset classes, sectors, and geographic regions. This step can help manage risk and potentially improve returns.

Remember, market downturns do happen – and can be particularly stressful as you near retirement. When assessing risk, making emotional decisions based on short-term market fluctuations can be detrimental. Consider consulting with a financial professional if you have questions or concerns about your investment risk exposure.

Step 3 - Protect Your Savings

Building assets is only half the battle - protecting them is equally important. As your wealth grows, so does the need to shield it from potential threats.

In your 50s, you're likely at your peak earning years, but you're also approaching a time when recovering from financial setbacks becomes more challenging. That's why it's crucial to implement strategies that safeguard your hard-earned savings.

• Review Your Insurance Coverage - Ensure you have adequate life insurance to protect your family's financial future.

• Create or Grow Your Emergency Fund - Aim to have 3-6 months of living expenses in an easily accessible account. This fund can prevent you from tapping into your retirement savings for unexpected expenses.

• Pay Down High-Interest Debt - If you still have high-interest debt, prioritize paying it off. The interest you save can be redirected into your retirement savings.

Step 4 - Optimize Your Social Security Strategy

Social Security is a cornerstone of retirement income for many Americans, but it's often misunderstood and underutilized. Your 50s are the perfect time to start thinking strategically about when and how to claim your benefits.

The decisions you make regarding Social Security can significantly impact your retirement income - potentially adding or subtracting hundreds of thousands of dollars over your lifetime.

• Understand Your Full Retirement Age - The full retirement age for those born in 1960 or later is 67. Claiming before this age will result in reduced benefits while delaying will increase your monthly benefit.

• Explore Delayed Claiming - Each year you delay claiming Social Security beyond your full retirement age (up to age 70), your benefit increases by about 8%.

• Review Your Earnings Record - Check your Social Security statement to ensure your earnings record is accurate. Errors could result in lower benefits.

Social Security's payment structure aims to pay out (more or less) the same amount regardless of when you start receiving benefits. The increased monthly payment may be worth it for those who are healthy and can afford to wait before claiming benefits. And remember that future increases are based on inflation - so if your monthly check is higher, it will also increase faster.

Step 5 - Address Potential Shortfalls

Even with the best-laid plans, you may find yourself facing a gap between your retirement savings and your goals. If this is the case, don't panic - there are strategies to help bridge this gap.

Your 50s can be a wake-up call, prompting you to take decisive action to improve your retirement outlook. Whether you're a bit behind or facing a significant shortfall, there are steps you can take to strengthen your financial position.

There are several strategies you can employ:

• Increase Your Savings Rate - Look for areas in your budget where you can cut back and redirect those funds to your retirement accounts.

• Consider Working Longer - Working a few extra years can significantly impact your retirement savings. It gives you more time to save, allows your investments to grow, and can increase your Social Security benefits.

• Explore Part-Time Work in Retirement - Planning to work part-time in retirement can reduce the amount you need to save and provide structure and purpose in your retirement years.

• Downsize or Relocate - Consider whether moving to a smaller home or a lower-cost area could free up equity or reduce your living expenses, allowing you to save more.

The Takeaway

Your 50s present a crucial opportunity to boost and protect your retirement savings. If you need help with your retirement strategy, consider seeking advice from a qualified financial professional.