It’s never too early or too late to set financial goals.
Financial goals for a 50 year old should evaluate progress toward a previously defined savings goal, as well solutions to decrease spending, increase income, increase savings, and improve investment returns to enable the accomplishment of retirement goals.
In this article, each of these factors will be addressed.
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How Much Should I Have Saved By Age 50?
There are rules of thumb for how much you should have saved at every decade, and age 50 is no exception.
Six times your income is a good estimate for the amount saved by age 50.
For example, if your income is $167,000 a year, $1,000,000 in retirement savings is the goal by age 50.
Similarly, if your income is $100,000 a year, $600,000 is the savings goal by age 50.
Discerning whether you’ve reached this goal will lay the foundation for your financial goals in your 50’s.
For example, if you see you’ve saved more than six times your current income or salary, you may want to reexamine your personal finance and savings habits with the following questions:
- Do I want to loosen my savings rate and enjoy life a bit more (aka splurge) over the next decade?
- Do I want to keep my current savings rate and retire earlier than planned?
- Do I want to continue to save and thus be able to spend more on things I enjoy, such as travel or hobbies, in retirement?
On the other hand, if you see you haven’t saved six times your annual income by age 50, you may want to ask these questions:
- How can I increase income so I can increase my savings rate?
- Do I want to delay retirement so I can save more money while working?
- How can I reduce my spending?
- Does downsizing make sense at this point in my life?
- Am I getting the best return I can get on my investments?
- Can I lower my investment costs so more of my investment return will compound?
- How can I improve my savings rate to better prepare for retirement?
Financial goals at age 50, and at any age, are about improving financial habits as well as investing so let’s go there next.
Personal Finance in Your 50’s
Individuals in their 50’s are often in transition, particularly those in their early 50’s. For example, many 50 year old’s still have children at home, or in college, unlike older generations who were empty nesters by age 50.
Someone in their early 50’s will likely reduce expenses significantly over the next decade due to the elimination of child related expenses. When setting financial goals at age 50, this is an important consideration for parents.
The savings can be significant and may include:
- Lower home costs due to a smaller home
- Lower auto, home, and health insurance
- Lower costs across the board, including food, travel, and phone bills
What Should Your Net Worth Be At 50?
Many people get confused about net worth vs savings when creating financial goals.
The focus should be on having liquid investments that are increasing in price or income generating assets when establishing financial goals; this equates to “savings” for most people.
Many 50 year old’s have a lot of home equity without adequate savings, however. Net worth includes home equity less a mortgage, if any.
Even though market values for home do often increase, home expenses can offset home appreciation, unlike paper asset investments such as stocks.
Both home prices and stocks, however, are subject to fluctuations up and down from year to year.
The savings goal by age 50 referenced above refers to investment savings more so than net worth calculations given the explained issues with home equity in building wealth and providing money to live in retirement.
In addition to the reasons addressed above, homes are not liquid while almost all stocks and bonds are extremely liquid assets.
How Can I Build My Wealth at Age 50?
Don’t get discouraged when establishing financial goals at age 50 if you see you’re not where you need to be. Granted, retirement is no longer on the far distant horizon by the time you’re 50.
Fortunately, however, there are many ways to build wealth or income that were simply not available to prior generations.
A 50 year old, for example, can easily increase income without using any savings capital with the addition of any of the following:
Outsourced services on sites such as Upwork
A variety of online business possibilities
There is also still plenty of time to increase salary earnings given the ease of acquiring certifications and training from online programs which can command a higher salary. Higher earnings from age 50 to retirement age will have a big impact on the achievement of financial goals.
Many focus financial goals in their 50’s on reducing expenses only. Age 50, however, can be an ideal time to begin gradually easing into an eventual retirement income stream. An income stream besides social security can significantly reduce the amount of savings needed to retire at a desired age.
A new creative income stream will affect financial goals set at age 50 as the focus moves from cutting the budget to increasing income. It can also provide new hope for financial security for life.
So, when you work on your financial goals at age 50, think expansively. Don’t focus only on cutting out expenses for things you enjoy.
Investments in Your 50’s
Financial goals at any age must encompass both personal finance (spending and saving) as well as investing.
Remember, financial independence is being able to support your desired lifestyle for life. The focus for financial goals at age 50 and beyond can be on building wealth, but it can also be on income investments since such investments provide cash flow to pay the bills for that desired lifestyle once employment ends.
Achieving net worth or savings milestones is certainly a worthy goal for those who plan to live off retirement withdrawals vs income investments, but income generating assets pay the bills, many in perpetuity.
In the past few decades, the financial plan was to transition gradually from growth to income investments by buying bonds at age 50 and beyond, while reducing stocks. Low interest rates, however, have made bonds less desirable for income investments.
If you haven’t saved six times your income at age 50, don’t be discouraged.
By the time you’re 50, you likely have massive skills that can be used to increase income. And as addressed previously, expenses will likely be significantly lower over the next decade if you’re a parent.
The main thing is that you’re defining what you want to accomplish, and setting financial goals to achieve it at this important decade milestone in your life.