How to Start Saving for Retirement at Age 50?

Thang Truong
Thang Truong
Updated on:

As you enter your fifth decade of life, you are probably putting much more thought into retirement and how to make that happen. If you haven’t put much effort into saving for retirement by this age, you still have time to prepare. 

These days most people are expected to retire at or around the age of 67 years old, which is when you can start taking full social security benefits. So, that gives you 17 years to save up and prepare.

This is the time to start thinking about how you’ll pay your bills in retirement and enacting some plans. For instance, you might need to cut back by selling the family home and moving into a smaller apartment. Or, you’ll want to look at maximizing retirement contributions if you can. 

Move into a Senior Community

One way to start transitioning into retirement is to consider moving into an age-restricted community. These communities are geared towards older adults, usually 55 years and up, with relevant amenities. Some communities also simplify your bills by tying utilities and rent into one monthly fee. If you are living on a modest income, you may also qualify for an affordable living community that is partly funded by the state and local government. 

For instance, communities built using the Low-Income Housing Tax Credit (LIHTC) set aside apartments for seniors earning anywhere between 30% to 80% of the area’s median income. If you live in an area with $100,000 annual median income this means you could earn between $30,000 to $80,000 per year and still qualify for an affordable living community.

Some types of low-income communities will take your savings into account when calculating your rental rates and eligibility. However, IRAs and other retirement accounts don’t necessarily disqualify you from being able to get into subsidized housing. A formula is typically used to calculate how much of the asset counts towards an applicant’s income and it can be quite lenient.

Fund Your Retirement Account to the Max

If you haven’t done so yet, open up that IRA or 401K account and start investing now. The IRS allows those who are 50 years or older to set aside a little extra money in their IRA with ‘catch-up contributions’, which helps grow your wealth faster. These contributions are additional money on top of the annual maximum limits. They are as follows:

  • 401(k), 403(b) and 457 plans: $6,500
  • SIMPLE IRA and 401(k) plans: $3,000
  • Traditional IRA and Roth IRA: $1,000

>>MORE: Calculator: How Much Do I Need to Save Monthly for Retirement?

After maxing out retirement accounts with tax-deductible contributions such as 401K and IRA, you should also consider opening a Roth IRA account as well. You fund your Roth IRA account with your after-tax money, when you withdraw money from your Roth IRA account in retirement, you don’t have to pay income tax. This will help out manage your tax more efficiently, especially if you happen to be in high income bucket.

If you can afford it, you should also consider a mega backdoor Roth IRA as well. This will allow you to save up to $57,000 a year for your retirement, both before-tax and after-tax contributions. Learn more how to use a mega backdoor Roth IRA to contribute after-tax money to your 401K and convert it to Roth IRA account, the example is for a 401K account at Fidelity, to benefit from its tax advantages when you retire.

>>MORE: Roth IRA: Everything You Need to Know

>>MORE: The Best 10 Firms to Open A Roth IRA Account

Buy Your Life Insurance

After maxing out all of your retirement accounts, you can consider a permanent life insurance policy as well. You can also build up a decent amount of cash-value in a life insurance policy. Life insurance is more expensive when you first invest in it at 50 years old, but it’s worthwhile if you pick the right product. 

You can also set up your life insurance policy with a large upfront premium payment, or purchase a single-premium payment policy that will grow for 17 years. This way you can get a head start on the growth of your policy’s cash-value, since you have a limited amount of time left until retirement.

>>MORE: Understanding Indexed Universal Life Insurance (IUL): Why Is It A Good Option for Retirement Savings?

The Benefits of an Indexed Life Insurance Policy

An indexed life insurance (IUL) policy may be the right choice when growing wealth for retirement. It provides a decent amount of growth every year for policyholders.

An IUL is a type of permanent life insurance that provides a lifetime of coverage. An IUL, like other kinds of permanent insurance, also features two components, the death benefit and the cash-value

Think of the cash-value as a liquidable asset that you can access at any time you need. This part of your insurance policy grows with each payment you make, through annual dividends the insurance company may provide, and through the growth of a selected market index. You see, the insurance company will add interest to your IUL’s cash-value based on how well a chosen index, such as the S&P 500, performs that year. If the market has a good year, then your IUL will have a good return that year too. 

When you get older and the cash-value is large enough, you can choose to make regular withdrawals or loans from your IUL. Many seniors use their life insurance policies in this way to add supplemental income in their retirement years.

>>MORE: Why is Indexed Universal Life Insurance Policy (IUL) a Good Idea for Retirement Savings? (Compared with Other Retirement Savings Accounts)

>>MORE: Should I Invest in S&P 500 Index Through An Indexed Universal Life Insurance (IUL) Policy?

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Delay Taking Social Security

Consider putting off taking your social security benefits until the full retirement age of 67 years old. This helps you maximize potential income.

While many people are tempted to take their social security benefits as soon as they can at the age of 62 years old, there are good reasons to delay. 

By taking social security as soon as you can, you’ll be locking yourself out of a lot of extra income. The Social Security Administration deducts up to 30% of the amount you would normally receive from your monthly benefits. Every month that you delay taking social security means your ‘penalty’ for taking benefits early is lowered. 

Here’s a brief look at what percentage of the full social security you would get when applying for benefits at different ages.

  • 62 Years: 70% of Full Benefits
  • 63 Years: 75% of Full Benefits
  • 64 Years: 80% of Full Benefits
  • 65 Years: 86.7% of Full Benefits
  • 66 Years: 93.3% of Full Benefits
  • 67 Years: Full Benefits

If you could delay taking social security benefits until 72 years old, your social security benefit will increase by roughly 8% each year after 67 years old.

The longer you hold off on signing up for social security benefits, the larger your monthly check will be.

>>MORE: IUL vs. Roth IRA: Which One is Better for Your Retirement Savings?

Final Thoughts:

  • Consider downsizing or moving into a retirement community to reduce your bills.
  • Begin making ‘catch-up contributions’ to your retirement fund, such as an IRA or a 401(k).
  • Look at getting a permanent life insurance policy, like an indexed universal life policy.
  • Consider delaying your social security benefits until the full retirement age of 67 years old.
Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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