When you reach your 50s, you may feel some unease that your retirement years are not far off. After all, the following decade is the one in which people typically retire. This may leave you with a sense of urgency to assure that you are on track for your retirement goals. In this article, we’ll discuss benchmarks to measure your progress against, and strategies for catching up if you’re not there yet.
A Great Decade
For many American households in their 50s, most of the milestones of the 20’s, 30’s and 40’s has been achieved. Many earned an education in their 20’s, and gained skills and built a career in their 30’s. By their 40’s, many are far along in raising a family and have purchased a house. Many Americans in their 50’s have substantial home equity and have been contributing to retirement accounts for three decades by their 50s. Their investments have been growing and their mortgage balances have been declining, resulting in their net worth reaching new heights.
The 50’s bulge in net worth can be seen in national statistics. The Federal Reserve’s Survey of Consumer Finances (SCF) is a triennial cross-sectional survey of U.S. families that collects information about families’ balance sheets, pensions, income, and demographic characteristics. According to the 2023 survey, average household net worth now tops $1 Million for Americans in their 50’s.
If your household net worth is not at this level, keep in mind that averages can be deceiving. The net worth of the “1%” in America skews the average drastically. In fact, the top 1% of American earners now control more wealth than the nation’s entire middle class, federal data show. A more representative measure of middle America is the median. In 2023, the median net worth of fifty-something American households was about $300,000, a far cry from $1 million.
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How Much is Enough?
If you have reached the level of being millionaires in your 50s, congratulations. Of course, having a certain level of net worth in your 50s is not the definitive measure of retirement readiness. As financial planners for pre-retirees, we tend to focus on the level of liquid assets you have, as well as how much income resources like pensions and social security you have become eligible to receive in retirement.
How much liquid assets are enough, you ask? Well, it is relative to what your spending level will be in retirement. For instance, if your spending level in retirement will be $150,000 a year in retirement, and $100,000 of that will need to come from draws on your liquid assets, the “4% rule” calls for liquid assets of about $2.5 million at the beginning of retirement.
Gauging where your liquid assets should be 10 years or so before retirement takes a little more math. Common savings benchmarks for the ideal levels of savings at different ages tend to be relative to your current income. For instance, a well-publicized measure says that by age 50, you would be considered on track if you have four to six times your preretirement gross income saved. So, if your household gross income is $200,000, you should have $800,000 to $1.2 Million saved by age 50.
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Looking Forward to Your 60s
By the time you reach your 60’s, many of the earlier decade milestones will be in the rearview mirror. You will have fewer years to build savings at that point, so the 50’s are an ideal time to commit to catching up. If due to changing life events, your net worth is not on par with what the benchmarks and averages say you should have reached in order to be on track for retirement, do not despair. You may be more able to save than ever before, now that commitments like paying for the kids’ college education are winding down. This is the time when “catching up” can make all the difference. If you are 50 or older, you can use “catch-up” contributions in your retirement plan or your IRA. In 2024, the contribution cut-off is an additional $7,500 to your 401(k) plan each year, and an extra $1,000 across Traditional and Roth IRAs combined.
No Substitute for Planning
The 50’s can be a great decade for some but may be a stressful time for many. With retirement years approaching, trying to catch up in a limited time frame can be daunting. It’s not advisable to rely strictly on where benchmarks and averages say you should be. You have your own unique goals, dreams, and circumstances. “Cookie cutter” benchmarks are no substitute for planning.
As family wealth advisors, we take pride in providing thoughtful financial analysis, planning and investment advice. Whether it’s an income plan for retirement, a transition to the next chapter in life, or simply maintaining your financial health in a changing environment, our goal is to support how you want to live and help you plan for the future.
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