Nearing Retirement: In Your 50s

Are you ready to retire?

By Taylor Mallory

When your parents retired, they may have gotten gold watches and pension funds, but those days are long gone. Now individuals must plan not only where they’ll retire and what they’ll do during the 20 to 30 years or more of today’s active retirements, but also how they’ll assume a larger-than-ever share of financial responsibility.

Or maybe you’re not ready to leave the workforce permanently, like your parents did. More than two-thirds of today’s boomers plan to keep working and earning in retirement, according to a study conducted by Age Wave, a group studying boomers and the aging population. Many women can’t imagine leaving work forever at age 65 but would prefer to keep working or “rewire,” meaning start a new career or open a small business. Perhaps you’re nowhere near ready to start living off your retirement savings, but you can take advantage of the government breaks for retirement savings.

Here’s what to consider, whether you’re getting ready to retire or rewire:

Are You Ready? To ensure your making the most of years just before consider these questions:

• How much money will I need (per year, per month) to maintain my current lifestyle? 
• What will my combined retirement income be (from pension, 401(k), IRA, annuity, Social Security)?
• How soon can I access my retirement plan money, and what are my options for taking it? 
• How will my overall tax situation change after retirement?
• What can I do to strengthen my retirement portfolio?
• What type of healthcare coverage do I have/will I have? 
• What if something happens to my spouse?
• What if something happens to me?
• Should I look into long-term healthcare or other insurance?

When should you retire? One rule of thumb is that your savings and investments should produce enough income for you to live comfortably. If you are drawing from principal, conduct a thorough review of your retirement savings plan to see how much of your living expenses you’ll have to supplement with savings dollars. If you don’t already have a financial adviser – and you’re not a financial professional – now may be the time to seek expert help.

Simplify Through Consolidation

To simplify your financial life, consider rolling all your tax-deferred investments from previous employers’ retirement funds – and any IRAs you’ve started on your own – into one IRA. Consolidating retirement assets into fewer accounts or just one account allows you to reduce paperwork, eliminate multiple fees and easily assess your retirement resources to determine how far you may have left to go.

Keep Growing Your Savings

Do you have sufficient savings to carry you through 20 to 30 years or more in retirement? If not, consider these options to get you there:

Save more. Try to boost your savings to 20 percent or more. Even if it means making a few sacrifices today, isn’t it worth the security of knowing you’ll be self-sufficient tomorrow?

An IRA contribution. While you’re still earning income, consider the extra long-term savings opportunities in a Roth or traditional IRA. In a Roth IRA, earnings are tax-free; in a traditional IRA, earnings are, as in an employer-sponsored retirement plan, tax-deferred. If you are not eligible for an employer-sponsored plan in a given year, you may qualify to make a tax-deductible contribution to a traditional IRA. Contributions may also be tax-deductible for employer-sponsored plan participants who do not exceed adjusted gross income limits.

Catch-up contributions. You now qualify to make additional “catch-up” contributions to your retirement plans to help offset potential under-contributions in previous years. For 401(k)s, if your plan allows, you can make a catch-up contribution of up to $5,000 even if no other elective deferral contributions may be made to the plan because of IRS or plan limitations.

Annuities. Contracts issued by an insurance company, annuities allow you to save more for retirement than an IRA and employer retirement plan. Like the latter plans, annuities are tax-deferred until you withdraw the funds, but they don’t limit your contributions, allowing for a more flexible – yet still tax-advantageous – option. Unlike most retirement plans, annuities do not require you to take required minimum distributions starting at age 70 ½. Any guarantees are based on the claims-paying ability of the insurance company.

Withdrawals of earnings are subject to ordinary income tax. In addition, a federal 10 percent penalty may apply to withdrawals taken prior to age 59½.

Secure Your Finances

The average woman lives 10 years longer than the average man. While it’s certainly no fun preparing for the worst, consider that you may have to live part of your life without your life-partner – male or female. Life insurance can help replace a pension or Social Security if you outlive your spouse or partner. 

What To Do With Your Retirement Plan

What should you do with the assets you’ve accumulated in your company-sponsored retirement plan? Retirees have three distribution options:

• Leave the money invested in your former employer’s plan. This leaves investment options intact, but plan options may change, possibly making funds less accessible. Contact your former employer’s plan administrator for more information.
• Take your retirement plan distribution in cash. This provides cash for immediate use – but at a huge cost: 20 percent withholding, taxation, plus a 10 percent early withdrawal penalty for those under age 59 ½. 
• Establish a rollover IRA. For investors who are changing jobs or retiring, rolling over a distribution to an IRA may be an easy and inexpensive way to maintain the continued benefit of tax-deferral. IRAs offer an expanded array of investment options but may not have some of the benefits of qualified plans. The primary advantage is gaining control over your assets: You decide where you want to invest, when to withdraw and/or transfer the funds and how to change your investments.

Retirement Checklists:

Five to 10 Years Before Retirement: Checklist

• Make sure your assets are protected. See “Retirement Roadmap: Midcareer” for a detailed list of insurance options.
• Review your spending patterns to determine how much income you’ll need in retirement. Try Wachovia’s retirement income needs estimator.
• Calculate what you expect to receive from all sources (company pension plans, your 401(k), IRAs, annuities, personal savings) when you retire.
• Revisit your retirement savings goals. How much more do you need to save before retiring to reach that goal?
• Contribute the maximum amount to your 401(k) plan – and take advantage of “catch-up” contributions to your IRA.
• Review your investments every three to six months.

One to Five Years Before Retirement: Checklist

• Identify the areas, both financial and non-financial, where you may not be prepared. Try Wachovia’s retirement readiness assessment.
• Review your spending patterns to determine how much income you’ll need in retirement. Try Wachovia’s retirement income needs estimator.
• Revisit your retirement savings goals. How much more do you need to save before retiring to reach that goal?
• Think about how you want to spend your time in retirement, including any activities you enjoy and find rewarding.
• Consider whether you may want a part-time job or second career. An increasing number of women choose to start new careers – and even new companies – after retiring.
• Update your net worth statement that lists assets and liabilities. Consider whether your lifestyle will change after you retire and how this will affect the necessary amount of income. Certain expenses (such as dry cleaning and parking) may lessen, while others (such as travel and out-of-pocket healthcare expenses) may increase.
• Assuming all debt has been paid, begin setting aside at least a year’s worth of living expenses in a liquid account as a contingency fund.
• Create or revisit your estate plan.