For many people, turning 50 signals a shift in the way they approach their finances. If you have kids, they’re probably preparing to leave the nest and you may just be hitting your stride in terms of your earning power. With retirement looming, now’s the time to amp up your efforts to save. Whether you’re a late bloomer or you’ve been socking money away steadily over the years, here’s what you can do to enjoy a rich retirement. The three steps are leverage all your savings options, be strategic about paying down debt, and manage risk carefully. Once you’ve maxed out your employer’s retirement account, you can supplement it with an IRA. Another option is a high deductible health insurance plan. You can save up to $3,350 in a health savings account (HSA) if you have an individual plan and $6,750 if you have a family plan. Once you turn 65, you can tap this money penalty-free, although you will pay taxes on any distributions that don’t go towards qualified medical expenses. Once you’re in your 50’s it’s best to have no debt or as few remaining debt obligations as possible. The author notes at this point before you begin paying your monthly debt payments, ensure that you’re still making the maximum amount of contributions to your retirement accounts. Why? Because you’re going to have to start drawing on this money when you reach the eligible withdrawal age. You want to have your money working as hard as it can for you. Even something as simple as taking advantage of balance transfer options on credit cards at lower to zero percent interest rates can help accelerate your debt repayment plan. It’s also important at this age to have a complete understanding of good debt vs. bad debt. An easy example of good debt is owning a rental property that has its mortgage being paid for by the rental income generated by renters. Again this example is a very simplified version of good debt, and just understand that personal debt which is greater than your personal income is dangerous in your 50s. The author advises managing risk carefully, and I agree. In your early 20-30s, you had your health and time on your hand, however in your 50s you should be considering a more conservative strategy. If you’re still investing heavily in stocks, now’s a good time to begin easing towards more conservative investments. You may see your returns reduced slightly but the trade-off is that you’ll be better insulated against market volatility. At this point in your life, you may not have the ability to recover your losses if you’re taking an aggressive style in the market. I also recommend not just being in one asset class but have a focused concentration in other asset classes. If you’ve followed my process for many years, you should have little personal debt, plenty of savings, and multiple types of assets that should create multiple streams of income. The important thing to do whether you’re 25 or 55 is to take action and build wealth.
I got up this morning at 5 a.m. and was pretty pleased with myself when I made it to my 9:30 a.m. coffee catch-up meeting only 7 minutes past the scheduled start. I’m chronically late–not typically when meeting with my clients, but certainly with my friends and family. They’re generally pretty accommodating, but I suspect that they’ve been more than irritated with this pattern over the years. So every year, I resolve to be more punctual, with little success until now. I’ve been curious to know why this is the case and found a clue when I came across this podcast with Richard Thaler, “Why Most Economists Might as Well Be Studying Unicorns.” The point of this chat with NPR’s Shankar Vedantam is not specifically about lateness or loss in productivity, but more about all of the mental tricks we play on ourselves to make sense of our world and rationalize our decisions. The author argues that improper mental accounting is the habit that a person needs to stop doing. Patterns of imprecise time estimating are what keep us in that perpetual state of feeling behind and overwhelmed.
In other words, estimating how long it takes to complete a task and not remaining focused is a dangerous habit not just in our personal life, but our business life as well. The danger in a person’s business life is that a person may put aside bigger projects when there is more free time, however procrastinating in this way can cause a person to avoid those bigger projects altogether. In order to improve your mental accounting, you need to time yourself on the important but not urgent tasks to put a real figure on how long it takes, and use a timer to get big projects started. On this second tip, set a specific time amount you will use to get to work on a project, and once the timer goes off, either keep going or stop based on your energy level. Personally, I’ve e-mailed my time schedule out to some of my friends to show them how essential it is to be able to organize your tasks in a day and tackle them. Having a time schedule will increase your efficiency and productivity. In a nutshell improper mental accounting can create a habit of being inconsistent. The key word to remember when operating a time schedule is consistent. Do I always hit my schedule 100% all the time? No. However, I always have a foundation I can go back to, and build upon when I am inconsistent. “Commit to the LORD whatever you do, and he will establish your plans.” Proverbs 16:3 NIV. I encourage you to take on the habit of thinking about a task, writing it out, and talking about it. At the end of this blog post, I’m going to include a YouTube link to the audiobook version of the Slight Edge by Jeff Olson. This book in essence shares the concept of Seed, Time, and Harvest.
When you think of a small space, you might think of the 500-square-foot tiny homes that have become a popular option for those looking to really downsize. But there are benefits to living in a smaller home — and you don’t have to take your square footage to extremes to enjoy them. Proof: Consider the 1,000-square-foot home. It’s smaller than the average house (according to the most recent U.S. Census Bureau data, the average size of a newly built home is 2,657 square feet), but not so small that you need to subscribe to a movement (and buy a Murphy bed!) to live there. Personally, I’m a fan of a 1,000 to 1,500 square foot home. I don’t want to have to worry about keeping the house clean after a long day of work, and ideally I want to stay in my home the rest of my life if it’s in a good area. My fiancé probably feels otherwise, but as we age, I don’t want to have to worry about maintenance, cleaning, and other expenses that could drain our income. “Whether you’re an empty nester moving from a house into a condo, or a renter trading in a two-bedroom for a studio and a shorter work commute, many people now see downsizing their home as a step forward, not backward,” says New York, NY–based designer Heather Higgins, who frequently handles projects in the 1,000-square-foot area. “Requiring less time, energy, and money, smaller living spaces provide greater lifestyle flexibility.” Here are eight reasons to consider a smaller home: smaller tends to be more affordable, you save on utilities and other routine expenses, you can afford to be closer to the action, upkeep is a breeze, it’s easier to keep clean, you can get creative with upgrades, by thinking creatively you can still host large groups, and small homes feel cozier. These eight reasons highlight a simple idea of being content with what you have. For me having financial freedom and security is more important than having a big home that requires upkeep. For you there may be plenty of reasons for a large home, but ask yourself is the large home out of necessity or is it because you are trying to keep up with someone else? The problem with keeping up with the Joneses is that it’s exhausting! “I am not saying this because I am in need, for I have learned to be content whatever the circumstances. I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. I can do all this through him who gives me strength.” Philippians 4:11-13 NLT. There’s nothing wrong with being content with what you have, because this life is a gift to be treasured and shared.
Below is the link to the audiobook version of the Slight Edge by Jeff Olson:
If you need agreement in prayer, or if you’re in need of a financial checkup you can reach me in the contact me section.
“But those who want the best for me, Let them have the last word—a glad shout!— and say, over and over and over, ” GOD is great—everything works together for good for his servant.” I’ll tell the world how great and good you are, I’ll shout Hallelujah all day, every day.”
Psalm 35:27-28 MSG