How to Prepare for Retirement at 50 | Steps to Catch Up

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Preparing for retirement should ideally be a task that you want to start early. People who start early have plenty of time to save and prepare for retirement. They may not need to save as much to get to their retirement goal. This is why it’s very important to start early.

According to a poll in 2019 by The Associated Press-NORC Center for Public Affairs Research, 23% of Americans expect to never retire and to work all their life. Also, according to a report from United Income, a financial planning and investment management company, more than 20 percent of adults over age 65 are either working or looking for work, compared with 10 percent in 1985.

More and more Americans are losing their hopes for retirement; they no longer see it as a possibility.

But don’t let these stats put you down, not all hope is lost for those who are in their 50s or maybe even later in life. You can still retire with dignity and a comfortable retirement but you need to start today! How to prepare for retirement at 50 is a task that will take strong efforts on your part but it is doable.

That being said, you MIGHT have to work past 65 like the stats above point out but the goal is for you not to continue to do that forever, instead, get out of that situation as soon as possible even if you have to work a little bit at or past 65.

Below, I will outline steps that anyone can use to get out of their hole and see the light at the end of the tunnel. They will be simple steps that, with consistency and dedication, will put you in a position of achievable retirement.

Step 1: Get on a Budget!

In order to start seeing what your money is doing, how it’s moving, how to allocate it, and more. You need a budget. Your budget will take you out of so many ditches that you previously might have thought you would never get out of… or ditches that you never even knew you were in!

When you begin to track your cash flows you begin to find expenses that you may have actually forgotten about. You begin to see where you can cut back and where you can put more money in. A budget will allow you to have enough money available to you to put into any type of retirement account even while taking care of other mandatory expenses.

Since you’re now tracking all the cash that’s going in, out, and begin saved we can now move on to the next step.

Step 2: Pay off ALL Debt ASAP

If you’re going to retire, you need to be out of debt. You can’t retire as comfortably if your retirement income is going toward debts that are no longer building value for you.

If you’re going to retire, get out of debt.

There are many methods to do this but they are all in compliance with a budget. Since you now have a budget, you can track how much money will go toward paying off debt so that you can make allocations toward necessary expenditures. And if there’s extra cash available outside of your mandatory debt payments you can add it to your retirement funds or pay off your debts sooner.

Some financial consultants recommend that people simply get their debt out of the way as soon as possible before they even consider making more contributions to their retirement account(s). I don’t think this is a bad idea, but if you have enough income to fund your retirement account(s) then go for it. However, if you’d rather just put as much income as possible toward your debt before you fund your retirement account(s), then that’s perfectly okay too because you’ll be out of that debt a lot sooner.

The goal is to be out and done with debt. Whether it’s with a ‘smallest to biggest’ debt method (debt snowball by Dave Ramsey) or whether is ‘biggest to smallest’ debt method (debt avalanche) to have less accumulating interest on it. It doesn’t matter, as long as you’re out of that debt in its entirety.

Considering the next point, you want to have a $1,000 fund available to you in the case that an emergency arises while you’re paying your debt. This advice comes directly from Dave Ramsey and I completely agree with it. Having a $1,000 back-up fund is very beneficial and provides a sense of security.

Once you get all your debt out of the way, we move on to the next step…

Step 3: Build an Emergency Fund

Once you are entirely debt-free and if you have that $1,000 net for an emergency, start building it.

If you don’t already have an emergency fund, start one. This fund needs to be at least 3-6 months worth of expenses (at the very least). This isn’t retirement money, this is ‘oh crap’ money for unexpected expenses that occur before or during retirement. Your retirement income is not for ‘oh crap’ moments. It’s to cover your basic expenses and maybe a little more during retirement.

The emergency fund will be the backup money in case something completely unexpected occurs. If there’s an unexpected medical occurrence, a car that’s not working, a home appliance that went out, or you lose your job, you have that emergency fund to cover it. You won’t be using regular income or retirement income for this unless you can afford it.

If you want this fund to be more than 3-6 months worth of expenses, that’s completely okay; in fact, that’s what I do! In the case that an emergency comes up and you have to use this fund. You will need to rebuild it back up because an emergency can very well happen again.

Once you’ve reached 3-6 months’ worth of expenses, keep funding it. In this case, though, you no longer need to fund it with as much money as before. You can fund it with smaller increments of money if you can afford to do so while also moving on to the next step…

Step 4: Contribute to a 401k, IRA, or any other Retirement Accounts

You’re tracking your money, you’re out of debt, you have a net to fall in if an emergency comes up, now you can contribute as much as possible to as many retirement accounts as you can. The first thing you need to do is ask your current employer if they offer a 401k and a match.

Contribute as much money as you can toward that account or at least what they match because that is entirely FREE MONEY that they are giving you. A feature that 401k’s have is that they can rollover; this means that if you change employer or want to move your 401k funds to any other retirement account, it is easy to make that transition.

Aside from 401ks, look for other retirement accounts that you can contribute toward. Roth IRAs and Traditional IRAs are excellent options but keep in mind that there is a limit of $6,000 (tax year: 2020) that you can contribute to these accounts in total.

For retirement accounts, you want to contribute a minimum of 15% of your household income toward retirement. If you can contribute to a 401k make this your primary goal to contribute towards. Max out your accounts as much as possible so that you can have enough to retire in the shortest amount of time possible.

I don’t want to get into specifics on this because depending on each individual’s situation, the accounts you can open, and the amount that you can afford to contribute may vary.

For example, if you’re self-employed and have employees, you can look into opening a SEP IRA. Alongside this, you can have your Traditional or Roth IRA as well.

Small business owners might be able to add extra funds to their retirement by funding their retirement accounts designed for small businesses, like a SEP IRA.

Retirement Tips for Late-Starters (Step 5: Find ways to make extra money)

There are multiple ways in which you can increase your income. As a person who is 45 to 50 or older, you have the advantage of having years behind you. You’ve had the time to learn new skills, now you can apply them to real life.

Use these skills to start a ‘side-hustle’ as an individual contractor, a consultant, or other services you can provide to make extra money. This could potentially make you more money than your current job if you’re currently employed.

If you’re married, you can use a spousal IRA to fund an IRA for a spouse who doesn’t work for pay. This opens up an opportunity for you to have a higher limit on what you’re able to contribute toward retirement.

As you grow, you also want to make sure that your investments are not extremely risky. While a riskier investment may have a possibility of providing you with a higher short-term return, you also run the risk of losing money in the short-term and not having it available for retirement.

If you’re willing to take that risk, you can. But I would consider less risky investments at an older age because retirement is so much closer at that time. When you want to enter riskier investments make sure to do in-depth fundamental analysis on those investments.

For example, if you’re planning to invest in an individual company, find out what its intrinsic value is and if its stock price is over- or underpriced.

Keep in mind that in order to find these details of a company, the research necessary is A LOT. Only make these types of investments if you’re willing to put the time in to do the research. That being said, even if you do the research on a company and find its intrinsic value. Do not put all your money into that investment, diversify and allocate other portions of money toward other investments. Don’t put all your eggs in one basket. Diversify, diversify, diversify!

This is your retirement, not a gambling game.

One more thing, when you fund your IRA accounts, take inflation into account, this is a very important factor. Inflation is the fall in the purchasing power of money. Look into the current year’s inflation rate and make it a goal to increase your contributions by that rate. This will not only provide you with more income in the future, but it will also offset the value that your money would have lost due to inflation.

Conclusion

Investing for retirement can be tricky but don’t let that demotivate you from doing so. Remember that it will pay off greatly in the end and you’ll be happy you did so. Retirement doesn’t have to be something that you will never obtain, follow a blueprint, and establish simple steps like these to be able to get there.

Retirement doesn’t have to mean that you won’t be doing anything for the rest of your life (unless that’s what you want), it can also mean that you can be able to do whatever you want to do without having to worry about the money.

Regardless of what you want to do in retirement, it’s important to have a plan in order to get there.

Here’s a sum-up of the steps you need to take:

  1. Get on a budget – Track your expenses so that you can cut back on what you don’t need and put more of that into paying off debt and later into the future (your retirement).
  2. Pay off debt ASAP – Use the snowball method or the avalanche method to pay off all your debt as soon as possible. You don’t want to be stuck with debt when you enter retirement. Make sure to have a $1,000 minimum during the time of your debt payments so that you have something to fall into in the case of an emergency.
  3. Build your Emergency Fund of 3-6 months worth of expenses – Now that you have your debt paid off if you don’t have 3-6 months’ worth of expenses saved up. Start on it quickly! All the money that you were putting toward paying off your debt can now go to this fund and by the time retirement comes, you can have this fund to rely on if an emergency arises.
  4. Contribute to a 401k, IRA, or any other Retirement Accounts (max them out!) – Open as many retirement accounts (based on your individual circumstances) as you legally can and max them out! The more money you can add to these accounts, the faster you will get to retirement. This video goes over an example that demonstrates how possible it can be to start saving for retirement. Just make sure you start acting on this once you’re debt-free and have a fully-funded emergency fund.
  5. Find ways to make more money, apply what you know to start a side-income or an entire business – You’re at a good age where you’ve gained skills from doing things you love or from your current job. Apply those skills to consult or provide services to others. This can be as a side-income or it might even become a full-time business that provides you with more income than your original employment. Use your degree, your work knowledge, your hobbies, anything to make extra money. Start learning ways to teach others for compensation or provide services to help others for compensation

Since you don’t have as much time to save for retirement as a 20-year old, you have to realize that you need to put more work-hours into your day than only 40 hours. If you’re married and your spouse isn’t working, have them get a job where they can make some extra cash to speed up the process.

You’re going to have to work extra hard and find ways of making extra money to speed up the process but make sure to do all this in order as outlined in this article so that you get there quickly and so that you aren’t struggling financially once you get there.

If you have any questions on any of the information please comment below and I’ll get to them! You might even be the reason for my next article! Have an amazing day and let’s grow our income together!


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14 Comments

  1. Another well written, well stated and researched article! As I do fall into the “late bloomers” when it comes to saving for retirement, your article gives me ideas of how to initiate and manage to be more prepared than I have been. Thank you for another needed article about a subject most people don’t like to address!

    Debbie

    1. I’m glad to see you surfing through the site! Thank you very much for your feedback 🙂

  2. Hello there, If you’re age 50 or older, you can make “catch-up” contributions to your IRAs and employer-sponsored retirement plans. Married couples can use IRAs to fund an IRA for a spouse who doesn’t work for pay. As you get closer to retirement age, you may want to shift to less risky investments. Thanks for sharing this awesome article i know it would help a lot of persons.

  3. Hello there!

    The article there is really commendable and brilliant. It seen in societies where people with high paying jobs later retire from work and start living poorly as if they’ve never had a good job before. This usually happen because they didnt make good plans early enough as regarding their retirement while still working. This artile will actually open the eyes of many to better ways to prepare ahead of their retirement.

    Thanks.

    1. Of course 🙂 thank you for the feedback !

  4. I 100% agree with everything you have given here. I am sure if these steps are well followed, Life will be sweet after retirement. Thanks for sharing this with me, it was very helpful! Surfing your website I’ve honestly learned more about personal finance than I ever did in school, sad to say that because school should’ve been a great tool to teach me this. But fortunately, we have people like you to take the time to teach us about all this stuff.

    1. Of course! I really appreciate your feedback and it makes me happy to know that people like you are benefitting from advice like this.

  5. Thank you! This is a good reminder of taking action and doing several things to protect yourself and family. Having security and a nest egg is of comfort, especially during these times of Covid-19. I like your advice on the 401K Plan also. My Wife and I have worked very hard to stay OUT of debt and pay off all our Credit Cards in FULL over the past years and this has consequently saved us tons of money!

    1. I’m glad this was helpful! I’m glad you guys have done well financially! It would definitely be a good idea to get started on retirement soon since you seem to be well prepared and not facing any negative circumstances at the moment. Thank you for your feedback!

  6. Early preparation has never gotten anyone in trouble or a big mess. It has rather proven to always be the best choice anyone would make as it always pays off. In this context, I’ll love to say that as one ages and the age figure increases, it is advisable that he or she starts making plans for retirement. Time can never be too far or too close, so it’s best to be time conscious and know when to take a step. Thanks for this great article on how to prepare for retirement at 50. I’m sure people are going to learn something beneficial from reading this.

    1. Hey, thank you for surfing around the site! Yes, the earlier the better, but for those who didn’t start early, there is no ‘reversing the clock’ that’s exactly why I think it is important to start ASAP especially if you’re 50+. Thank you for your feedback 🙂 glad you found the value in this!

  7. Hi Misael, 

    U have provided some nice tips on planning for retirement. I have seen too many people retire and then not know where to go or what to do. It’s crazy, especially because you have all the time in the world to plan your retirement.

    I liked your budgeting tips and the way to build an emergency fund. It’s essential for everyone to build such a fund, anyway. 

    Thank u for a great article.

    Regards,

    Aps

    1. Glad this was helpful 🙂 thank you very much for the feedback 

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