How should my wife and I begin saving for retirement at 51 years old?
I'm 51 years old and my wife and I are without a retirement plan. Now that our son is through college, we're thinking about our financial future. We don't have a retirement plan but have three life insurance policies with a total cash value of approximately $60,000. Should we remove some or all of that cash and invest in a Roth IRA? How should we begin saving for retirement?
Congratulations on helping your son through college! Now as “empty nester’s” the task of saving for retirement. Without knowing much about your situation, here is a simple 3 point guide to get you started.
1- Establish a goal of how much income you need to have in retirement. This could be established by a percentage of your current budget. This helps you determine four things, (1) how much you need to accumulate, (2) the withdraw rate, (3) when and for (4) how long it could last.
2- Have a good understanding of your budget and what other goals would come in to play. Your budget would help maintain your lifestyle and also protect you if an unexpected event occurred. Do you have adequate protection for premature death, disability, high medical expenses and an emergency fund. What other activities will require a consistent savings program, such as travel, or a big purchase/expense, i.e., travel, second home or your son’s wedding (haha).
3- Lastly, where to fund your retirement in the most effective manner. Do you have access to an employer plan and do they match a percentage. This is the fastest way to boost your retirement savings program. Next, consider the various individual retirement account options such as an IRA or ROTH IRA to name a few. This point ties back to your goal because you need a running start to fund as much as possible and need to consider the risk you are willing to take.
You should be careful in reviewing the options with your existing life insurance policies, in terms of how or what to do with them. Things to consider, when did you purchase your policies and has your health changed? The cost of that same policy might cost more now and are you still insurable? Is there enough cash value that the policy would sustain it self or for how long? What does the cost of life insurance premium schedule look like in the later years and will the funding keep pace to sustain it.
Consider working with a financial advisor that you feel comfortable either on an annual or on an ongoing basis to help you get organized.
Hi, thank you for your question. Just on the surface, those policies can be extremely valuable. I would do a complete review of your policies first so that options can be discussed with you. Those policies can be a part of your long term outlook for retirement.
In regards to how to save - here are the key questions you are going to have to address to ensure you have the desired retirement outlook you are looking for long term:
1. What rate of return do I need on my savings and investments in order to retire at my current standard of living and have my money last to live expectancy?
2. How much do I need to put away on a monthly or annual basis in order to retire at my current standard of living and have my money last to live expectancy?
3. If I didn't change anything I am doing now, how long would I have to work and have my money last to live expectancy?
4. If I didn't change anything I am doing now, what would be my potential lifestyle reduction at retirement in order for my money to last til life expectancy?
If you don't know the answers to these questions, reach out to me and I would be honored to share how these questions affect your overall retirement picture.
Best wishes! - Roger
Historically, you can get a much better return from an investment portfolio compared to the interest from the cash value in whole life policies. Based on your timeline to retirement, you may be able to afford a more aggressive yet reasonable strategy to help you catch up. I highly recommend a managed ETF portfolio.
Congratulations on getting your son through college. Although you are late in 'beginning' you should absolutely start saving for retirement. What kind of account you use partly depends on your current tax bracket.
First, if your employer has a company retirement plan, you should max that out to get the employer matching contributions. Now that you are over 50 years old, you can defer up to $24,500 into employer provided 401k, 403b, 457b and Roth 401k plan. That includes a solo 401k if you are self-employed.
If your employer does not offer a company plan, use a traditional IRA or Roth IRA depending on your tax bracket. The higher brackets means you are able to lower your current income by the amount of the contribution (up to $6,500/year for ages over 50). More information would help with that decision.
If only one of your is employed, you may make an equal 'spousal' contribution to a spousal IRA or Roth as long as you make at least $13,000 in earned income.
If your cash flow allows, you also need a taxable brokerage account for savings over the IRA contribution limits. Since you are late to the game, you need to sock away as much as possible. In a taxable account you invest with tax consequences in mind. Meaning you use long-term equity investments (over 365 days), tax-free investments (municipal bonds) and qualified dividend paying equity investments.
If those terms are Greek to you I suggest you find a CERTIFIED FINANCIAL PLANNER (TM) to help you. You can also learn on Investopedia. I also recommend BetterInvesting, a non-profit organization that teaches people how to research companies and maintain a portfolio. See www.betterinvesting.com for a free trial.
Until you have a overall picture of your financial situation I would not make any recommendations on your life insurance. You need to have your options analyzed to see if that would help you.
Keep learning and investing,
Christi Powell, CFP, RICP
Now that your son is out of college, ask yourself if you need all three or any of those life insurance policies. If your wife depends on your income or vice versa, have one life insurance policy for the breadwinner. This policy should be strictly a term life insurance policy for which monthly premium is typically very low especially for someone with a good health condition. I think it does make sense to terminate some of all of the cash value life insurance and put the money in two Roth IRAs if you qualify. If you have money left over still, you should open a brokerage account and start saving in equities intelligently.
If you need further help, you can request a consultation.