5 Financial Steps People Over 50 Can Take Today
CHICAGO, January 25, 2023 (Newswire.com) - iQuanti: According to the American Association of Retired Persons (AARP), American adults over 50 would be the world's third-largest economy in terms of their total economic activity. That's because older adults have had decades to increase their income, acquire assets, and build wealth. Now, they're looking to preserve these assets and prepare for retirement. With that in mind, this article will dive into five steps people over 50 can take today to stabilize and grow their finances.
1. Reevaluate your mortgage
At this stage of life, you may be getting close to paying off your mortgage. Depending on whether you have other higher-interest debts, consider putting together a plan to finish your mortgage. Doing so can free you from debt in retirement and maximize your home equity as a source of retirement wealth.
If you don't want to pay off the mortgage right away, another option would be to consider refinancing if interest rates are low and you have strong credit. This could cut your monthly payment significantly.
2. Get a life insurance policy
LIMRA found that 68% of households with life insurance say they'd feel financially secure if the primary wage earner passed away unexpectedly. On the other hand, less than half of uninsured households in that study said they'd feel financially secure. So, it's clear that life insurance plays a significant role in stabilizing your financial situation into your 50s. With that in mind, here are two policies to consider:
Term life insurance
Term life insurance lasts for 10 to 30 years, depending on your choice of policy term. When your policy expires, you'll need to renew or buy a new policy to keep your coverage. However, term life insurance premiums can be more affordable than traditional permanent life insurance policies.
Guaranteed issue life insurance
Guaranteed life insurance is a small permanent life policy with guaranteed approval. It has a small death benefit, but premiums are affordable, and it comes with cash value. Some of each premium goes into this cash value, which grows tax-deferred at a fixed interest rate. Once it gets large enough, you can withdraw from or borrow against it, meaning you can build wealth through this cash value. You also get the cash value minus surrender charges if you surrender the policy.
Keep in mind that guaranteed issue life insurance has a one to two-year lockout period. Your beneficiaries only receive a refund of premiums if you pass away during this period.
Final expense life insurance
Final expense insurance is a small type of permanent life policy created to cover end-of-life costs, such as funeral expenses and medical bills. Death benefits and premiums are smaller, and these policies also come with the cash value growth component.
3. Look at your retirement savings
With a decade and a half or less until retirement, it's vital to look over your retirement savings and determine if you're on target to reach your goals. If not, you still have options — many tax-advantaged retirement accounts increase contribution limits after 50 so you can make catch-up contributions. For example, employees over 50 can contribute an extra $7,500 per year to their 401(k)s in 2023.
4. Prepare for Medicare and Social Security
Social Security benefits become available at 62, and Medicare at 65. However, you should research and prepare for each of these as early as possible. For Social Security, you'll need to sign up online at ssa.gov. It'll show you your earnings for each working year and how much you paid in Social Security taxes. You should determine if you want to take benefits right away or postpone them. You can postpone until age 70, and the longer you postpone, the larger your benefit becomes.
For Medicare, you'll have to determine whether or not you need an additional health insurance policy. Medicare generally covers most hospital and doctor expenses but depending on your health situation, you may need coverage beyond Medicare to afford your healthcare costs.
5. Create or update your estate plan
Now is a key time to create an estate plan if you don't have one, and update it if you do. At this age, when you have more assets and a complex financial picture, you want to ensure your estate-related wishes are in writing.
Some key documents you should have in your estate plan include a will, durable power of attorney, medical power of attorney, and advance health care directives. Update this plan every time you experience a major life event. Also, make sure to review it every few years.
The bottom line
Your financial picture may be more complex in your 50s than in previous decades. Consequently, there are new challenges to overcome and steps you can take to do so.
Reevaluate your mortgage to determine if you'd like to pay it off as soon as possible or refinance, then consider investing in a life insurance policy. After that, evaluate your retirement accounts to see if you're on track, and prepare for Medicare and Social Security. Finally, create or update your estate plan to account for all your wishes. Taking these steps now will ease financial stress and make you feel ready as you get closer to retirement.