Preparing for Retirement
Essential Steps Before and After 50
Liza A Pierce of “A Maui Blog” | Images courtesy Liza Pierce
At what age is the best time to think about retirement? The earlier, the better, especially when we think of this principle of compounding in the financial world. The thing is, when we are young, we do not think much about our retirement. Or at least, most don’t (or didn’t).
I am now in my late 50s, and this got me seriously thinking about retirement. I believe many of you, readers of The Fil-Am Voice, are thinking about it too, so let’s talk story about it here. For the benefit of readers younger and older than me, the discussion is in two Phases:
Phase 1: Building Your Foundation (Before Age 50)
Start Early and Build Strong. The decades before turning 50 are crucial for building a solid retirement foundation. The power of compounded interest works best with time on your side. Starting at age 25 versus 45 can mean the difference between needing to save $200 or $900 monthly to reach the same retirement goal. During these years, focus on aggressive growth and maximum contributions to retirement accounts.
Maximize Career Earnings. Your peak earning years typically occur during your 30’s and 40’s. This is the time to focus intensely on career advancement opportunities and skill development. Consider pursuing additional certifications or education that could increase your market value. Don’t hesitate to negotiate better compensation packages or take on additional responsibilities. Many professionals find success in building their expertise through challenging projects or leadership roles, leading to higher earnings.
Establish Multiple Income Streams. Diversification isn’t just for investments—it applies to income sources, too. While your primary job provides the foundation, consider exploring dividend-paying stocks for passive income. Real estate investments can provide rental income and appreciation over time. Many professionals also find success in consulting or freelance work related to their expertise. The key is to create income streams that continue into retirement.
Focus on Debt Elimination. Before hitting 50, make aggressive moves to eliminate high-interest debt. Start with credit cards and personal loans, as these typically carry the highest interest rates. Once those are handled, focus on car loans and make extra payments on your mortgage when possible. Entering your 50s debt-free or close to it provides significantly more flexibility in retirement planning.
Learn and Plan. Use these years to become financially literate. Understanding investment strategies, tax implications, and estate planning basics will serve you well. Stay informed about healthcare options and begin researching long-term care insurance while premiums are lower. This knowledge will help you make better decisions as retirement approaches.
Phase 2: Optimizing and Protecting (Age 50 and up)
Take Advantage of Catch-Up Contributions. The government provides extra saving opportunities once you hit 50. You can make additional contributions to your retirement accounts beyond the standard limits. These catch-up provisions can significantly boost your retirement savings, especially if you’re behind on your goals. Take full advantage of these opportunities in both your employer-sponsored plans and individual retirement accounts.
Refine Your Investment Strategy. As retirement approaches, your investment strategy should evolve. Consider gradually shifting to more conservative investments to protect against market volatility. Focus on creating reliable income streams through bonds and dividend-paying stocks. Many financial advisors recommend creating a bond ladder to provide predictable income during retirement years.
Healthcare Planning Becomes Critical. Healthcare planning takes center stage after 50. Research Medicare options and supplemental insurance plans thoroughly. Consider long-term care insurance while you’re still young enough to qualify for reasonable rates. Building a dedicated healthcare savings fund becomes crucial, as medical expenses often increase during retirement years.
Create Your Retirement Income Strategy. Develop a comprehensive plan for managing your retirement income. This includes deciding when to start Social Security benefits, determining which accounts to draw from first and creating a sustainable withdrawal strategy. Consider tax implications of different withdrawal sequences and work to minimize your tax burden during retirement.
Fine-tune Your Housing Strategy. Housing decisions become increasingly important as retirement approaches. Consider whether downsizing makes financial sense or if aging in place is the better option. If you still have a mortgage, create a plan to eliminate it before retirement. Some retirees explore reverse mortgages as part of their financial strategy, though this requires careful consideration of the pros and cons.
Focus on Estate Planning. Estate planning becomes more urgent after 50. Ensure your will is current and consider whether a trust might be beneficial. Update healthcare directives and power of attorney documents. Review and update beneficiary designations on all accounts and insurance policies. This planning provides peace of mind and protects your loved ones.
Practice Your Retirement Budget. Before actually retiring, experiment with living on your projected retirement income. This practice period helps identify areas where you might need to adjust spending or save more. Build an emergency fund specifically for retirement, and plan for irregular expenses like home repairs or medical costs. This trial run can reveal potential issues while you still have time to address them.
Prepare for the Transition. The emotional and social aspects of retirement become increasingly important after 50. Start developing hobbies and interests that can carry into retirement. Maintain and build social networks outside of work. Consider how you might want to stay active through part-time work or volunteering. Physical and mental wellness should be priorities as you plan for a fulfilling retirement lifestyle.
Remember, these phases aren’t rigid—they’re guidelines to adapt to your personal situation and goals. The key is to recognize that retirement planning needs to change as you age, and your strategy should evolve accordingly. By understanding and preparing for both phases, you can create a more secure and enjoyable retirement.
Good thing for us Pinoys—we are family-oriented. Retirement means we get to enjoy more time with our family—and maybe we will have grandkids at this time. With that said, it is good to be prepared.
Liza Pierce of A Maui Blog is an Interactive Media enthusiast. She started blogging in 2006 and she loves talking story online and spreading aloha around the world. She’s been living on Maui since 1994 and considers Maui her home. A wife, a mother, a friend…and so much more. She loves Jesus, is a Maui sunsets catcher, is crazy about rainbows and an end alzheimer’s advocate. Her life is full and exciting here on the island of Maui. Liza is currently the Digital Media Specialist with Hawai‘i Life Real Estate Brokers. She is the author of the book Maui 2021 and Beyond.