Don't Make These Financial Mistakes If You're Over 50
If you've reached a half-century of living life, congrats! Turning 50 is a huge milestone to be celebrated, but it's not quite time to be careless with your finances—here are some financial mistakes to be wary of.
Giving In To "Lifestyle Creep"
Whether you're excited because you're 50 and much closer to retirement or have been diligently saving to have a big 50th birthday blowout, or your salary has recently increased at your job, "lifestyle creep" is when you allow your spending to outpace your salary gains. Just because you can now afford a new car doesn't mean you should buy one!
Underestimate How Much You'll Need For Retirement
While retirement may be many years away for you, one critical mistake those 50 and over make is underestimating how much they'll need for retirement. You must maximize your contributions to your 401K accounts sooner rather than later.
Not Investing Your Extra Funds In Something
"Playing it safe" with your money is fine; there is a fine line between being too cautious and too risky. While retirement may be on the horizon, it's not as close as you might think, and you still have plenty of time to invest your money in bonds or mutual funds and get a good return.
Not Investing In Yourself
Similarly to "playing it safe" with your money by not investing in the stock market, you can play it safe by not investing in yourself. If you're constantly saving money but not traveling or doing other things with your money that could enrich your life, you're not investing in yourself. Spend some money and take that trip!
Neglecting To Plan Your Estate
Not to be too morbid, but you won't live forever! Despite having made it to 50, you want to ensure you and your family are prepared for the latter phase of your life. Take the time to plan your estate for after you're gone.
Not Having A Will
This might be a "life faux pas," but you'd be amazed how many people don't have a Will. Taking the time to write a Will and have it reviewed and certified by an estate lawyer is critical to looking after your nearest and dearest in the event of your untimely demise. Get one written up.
No Investment Diversification
If you're already invested in the stock market and have been putting money in steadily for the last decade but only into one or two stocks, you're missing out. Now that you're 50 and can't take your investment portfolio with you—why not consider branching out into other investments?
Not Accounting For Inflation
Whether you're investing a little or a lot of money, it's critical that you make any long-term financial planning account for inflation. Your financial advisor should be able to offer advice on how best to incorporate inflation projections into your financial planning.
Not Maximizing Your Savings While You're Still Working
While retirement may be near, you're not there yet! It's important to maximize your savings potential while you're still working. You don't want to spend a lot of money in your 50s and have little savings once you turn 60, and you should be just (optimally) five years from retirement.
Not Planning For Your Future Health Requirements
Long-term care insurance is different from health and medical insurance. You should be planning and buying into this now that you're in your 50s. While you might not need it, those long-term care insurance premiums will skyrocket once you reach 60. It's best to get started with enrollment and contributions now.
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Not Adding To Your 401K
You can contribute your usual amount every year, but you should increase your contribution if possible. Try increasing it by 1% annually from when you turn 50 until you retire. For example, if you paid an extra 1% per year from 50 till retirement at 67, you'd have earned an extra $16,000.
Using Brokerage Accounts
While most people use non-retirement investment accounts for their funds, you should investigate using a brokerage account instead. While every dollar you withdraw from a traditional IRA is taxed as ordinary income, the funds you withdraw from a brokerage account are taxed at a lower rate as capital gains.
Withdrawing From Your Roth IRA Early
Nobody likes to dip into their savings, but if you find yourself in a bind and need to do so—try not to touch your Roth IRA. There are higher tax implications for doing so. If you withdraw funds from your Roth IRA before 59 1/2, you'll pay a 10% tax on those earnings.
Not Saving For A Rainy Day
A decent savings account is critical for peace of mind and financial well-being. Do your best to save some of your monthly earnings in a traditional savings account, even if it's only a small amount each paycheck. An AARP survey found that 20% of Americans over 50 don't have a savings account.
Not Revising Your Estate Plan
Well done for setting up an estate plan! But these documents are easy to forget about once they're set up. You must revise your estate planning every five years or so, particularly when a medical event takes place or some other significant life event, like a divorce.
Not Investing In Disability Insurance
Similarly to long-term care insurance, disability insurance will become important as you age into your 50s. While you might be fit and healthy now, your body will start to break down as you go through your 50s and into your 60s. Putting a little bit of money every month into disability insurance is a great way to ensure you're covered for any equipment or services you may need should you become less able to move around freely.
Going Into Debt
Debt isn't something you should be worrying too much about in your 50s. Try not to go into more debt than you already have, particularly if you're worried about your retirement funds.
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Not Paying Down Existing Debt
Your 50s should be about paying it down if you have existing debt. Set up a monthly payment schedule with the company you owe money to, and try to be debt-free by the time you retire.
Filing For Social Security Early
The longer you wait to file for Social Security payments, the higher benefits you'll receive. Unless you have to, try to wait throughout your 50s and into your 60s to file for Social Security payments. Beware that you'll get them automatically once you turn 70.
Taking Out Employer-Matched Savings
Like an IRA, any employer-matched savings account shouldn't be touched until you're over 59 1/2. If you take money from your employer-matched savings account before 59 1/2, you'll be charged 20% in penalties and taxes.
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Less Than $5K In Company Savings When Changing Jobs
Your 50s may be the decade you consider slowing down. For some, this can mean changing jobs for a part-time or slower-paced job or even accepting that promotion from their company to retire in relative comfort. But if you leave less than $5,000 in your company-matched savings, you'll be left with very little when the company takes their 20% in fees. Have your employer place the money in an IRA instead.
Reviewing & Rebalancing Your Portfolio
While some savings mechanisms are very "fire and forget," your investment portfolio isn't one of them. Rebalance it every quarter or at least once every six months.
Failing To Plan Your Retirement
Even if you know that you're not in any position to retire until you're 65 or maybe later, if you don't plan for retirement, you'll likely not be able to retire. This could mean beginning contributions to your retirement savings accounts or even beginning a small-time interest-free savings account.
Not Knowing What You'll Receive When You Retire
Having a good idea of what you'll receive upon retirement is important. This means adequately planning how much you've set aside in retirement savings accounts and working out how much that will be every month. You should consult with a financial advisor about this.
Not Properly Assessing Your Financial Needs
Maybe your 50s are a great time to downsize and live a little. Or, maybe you've gone the other way and spent money like it's nobody's business and are now facing financial difficulty. You must properly assess your financial needs as you move into your 50s and plan for any changes in your health or living circumstances.
Investing In High-Risk Stocks
You're 50 years old and probably have between 15 and 20 years before you retire. Now is not the time to invest in high-risk stocks or new forms of currency like Bitcoin. Ensure that you understand your investments and how much they will return. Don't invest your hard-earned cash in anything high-risk.
Not Maximizing Your Employer-Matching 401(K)
If your employer is generous enough to offer 401(K) matching, sign up immediately and max out your contributions yearly. It's free money; why not take advantage of it?
Not Setting A Budget
Budgeting is something that everyone should learn how to do. It should be a mandatory class in school. It isn't, and many people don't know how to set a budget effectively. If you've just turned 50 and have been skating by without budgeting for the last several years, now's the time! Get together with your family and set a weekly or monthly budget.
Not Traveling Enough
If you have the money to travel, spend it on travel. As the saying goes, "collect experiences, not things." If you've never left your home state or even the US, make your 50th year the one where you take a once-in-a-lifetime trip to the place you've always dreamed of.
Not Considering Downsizing
If you own a very large home but are an empty nester—it's just you and your significant other—ask yourself whether you need all this space. Sure, it's nice when the kids and grandkids visit, but it also costs a small fortune. If you're struggling to afford your home, consider how you could downsize without significantly reducing your quality of life.
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Buying That Brand New Car
If your current car works fine, turning 50 doesn't give you a license to make silly purchases like a brand-new car. Instead, save that money to buy a camper van when you retire and travel across America.
Not Having A Work-Life Balance
Whilst this is true at any age, work-life balance is critical as you age. Your body can't do the 12-14 hour days you were used to when you were still a young, spry 20- or 30-something. And, living to work and working to live is no way to spend the last decade or two before you retire. Try and strike a work-life balance with more emphasis on life in your 50s.
One In Five Americans Have No Retirement Savings
There are about 125 million Americans over the age of 50. According to a 2024 study from the American Association of Retired Persons (AARP), 20% have no retirement savings, and 61% worry they'll not have enough once they retire. In 2022, the poverty rate among American seniors was almost 11%.
