Retirement Countdown: Investing in Your 50s and 60s

Key Takeaways

Up to now, you may have made most of your investment decisions with a long time horizon in mind. Because you had time to wait out the markets’ drops, you may have taken on riskier investments that gave you higher growth potential.

But now you’re closer to the actual day you’ll need to withdraw money. What has worked in the past may not give you the results you want going forward.

It’s a good time to revisit your goals—and reset the clock.

Retirement Savings Goals by Ages 50 and 60

How far along should you be with your retirement savings goal? Below are general guidelines. It assumes people will retire at their full retirement age  sometime in their 60s. Of course, every investor has his or her own savings and retirement date goals.

Explore more: Retirement Tips for Every Age

Are you happy with what you’ve saved up at this point, or do you feel like you’re playing catch-up? Here are some steps to consider when investing for retirement in your 50s and 60s.

Take Advantage of Catch-up Contributions

Although your investment time horizon is shorter, with age can come wisdom—and maybe more tax-free benefits!

Taking advantage of higher contribution limits to tax-advantaged accounts is one of the most significant ways to boost savings and keep the power of compounding working for you in your 50s and 60s.

After making the maximum contribution to retirement accounts, investors over age 50 are generally permitted to make catch-up contributions  in some employer-sponsored retirement savings plans, including:

• 401(k) (other than a SIMPLE 401(k))

• 403(b)

• Governmental 457(b)

People in their 50s and 60s can make catch-up individual retirement account (IRA) contributions, too. IRAs can help you save even if you already have a 401(k) or other workplace retirement account. Which IRA is right for you? Get a side-by-side comparison of IRA options.

And remember, contributions to tax-advantaged accounts can decrease current taxable income and maybe lower your tax bracket. The dual benefits of tax deferral and immediate tax savings can have a profound impact on long-term retirement goals.

Consider HSAs to Boost Retirement Savings

Health savings accounts (HSAs) are often overlooked for retirement savings. However, they offer advantages you won't find anywhere—a triple tax break:

• Contributions reduce taxable income.

• Earnings grow tax free.

• Withdrawals during your working years are tax-exempt if used for qualified medical expenses.

What’s more, you may be able to invest your account balance so it has the opportunity to grow for years until retirement. You’ll need to check the HSA trustee's requirements and available investment options.*

That means when you withdraw money later in life, when medical expenses are typically higher, you may have more cash available to cover medical bills than you originally put into your account. Plus, after age 65, you can use the money on anything, whether it’s a qualified medical expense or not, without penalty.

Find out more about how HSAs work and the benefits of using them for retirement investing.

Resetting Portfolios for the ‘Transition Risk Zone’

Our Multi-Asset Strategies team calls the 20 or so years before retirement the transition risk zone—when it’s more important than ever to prepare for the unexpected.

At this point, investors typically have accumulated most of their wealth. A sudden shock could jeopardize retirement and other savings plans just when there’s the most to lose and the least amount of time to potentially recover from losses.

Reevaluating how you balance risk and reward as you approach and enter retirement should be a key part of your strategy.

Reassess Your Risk Tolerance

Many investors in their 50s and 60s turn their focus to preserving their savings. They might choose a conservative investment approach that includes more bonds for their income and their expectation for less volatility.

Tilting equity investments to high-quality stocks may also help mitigate risks while maintaining some growth potential. These stocks tend to provide steadier performance than more aggressive stocks because they’re less affected by market fluctuations.

Review Your Cash Reserve

We believe everyone should have cash on hand—liquid, accessible money that you can tap if the unexpected occurs. That might be a sudden medical bill or an unexpected home or car repair.

A cash reserve may also help you avoid selling investments during a market downturn for income—incurring a loss instead of being able to wait for the market to potentially recover.

But there’s a downside to holding too much of your retirement nest egg in cash—the loss of growth. Not only do you want growth for the opportunity to build your net worth over time, but you also want it to outpace inflation. If your money is not growing as fast as prices are going up, you’re losing money because your purchasing power has fallen.

How much cash should you hold? Some experts suggest having three to six months' worth of expenses in cash. Others recommend saving for one, two or even three years' worth of expenses. The choice is personal, but the objective is to have enough to cover living expenses for an extended period of time.

Remember Diversification

Diversification is still important to help manage the markets’ ups and downs in the transition risk zone. Having investments in different asset classes helps reduce risk because each asset type reacts differently to market changes.

Diversifying your investments isn’t a guarantee that you won’t lose money, but it may reduce the likelihood that all your investments decline at the same time resulting in a large loss that’s difficult to recover from.

The Risk of Underestimating How Long You Will Live

There is a significant chance that you will live for many years beyond the average, according to the American Academy of Actuaries and Society of Actuaries. Unfortunately, many people fail to account for this when planning for retirement. This puts them at risk of outliving their savings—known as longevity risk.

The Actuaries Longevity Illustrator  can help you see the likelihood of how long you might actually live. With this information, you may decide to save more or work longer to reduce the odds of running out of money during your lifetime.

It can also help you develop a sustainable retirement spending plan. Learn how to create a plan for a steady income stream after you stop working, including withdrawal strategies to help make your money last.

Is 50 Too Late to Start Saving for Retirement?

Starting to save for retirement at the age of 50 may not be ideal, but it is never too late to start contributing to your future financial security. While it would have been advantageous to begin saving earlier, there are still steps you can take to build a retirement fund to supplement Social Security and other benefits.

At this stage, it is crucial to evaluate your current financial situation and set realistic goals. You’ll need to review your expenses and identify areas where you can cut back and save more. This might involve making adjustments to your current lifestyle or finding ways to generate additional income to devote toward retirement.

Consider working with a financial advisor who can help you develop a plan based on your individual circumstances and objectives—and make the most of the time you have left before retiring.