Reaching age 50 can feel like a financial turning point. Your career may be at its peak, but retirement is coming into focus. Additionally, new demands, such as financially supporting adult children or caring for aging parents, may draw your financial attention and affect your ability to meet savings goals.
“The five years before and five years after retirement are a well-known retirement red zone, where the wrong decision can cause long-term harm to the retiree,” says Steve Parrish, an attorney and professor at the American College of Financial Services in King of Prussia, Pennsylvania. “Although there is a lot going on during this period, prioritizing retirement planning is central to retirement success.”
Avoiding the following mistakes can help keep your well-laid plans on track.
Prioritizing short-term expenses rather than growing your nest egg
It’s easy to let more immediate financial goals sideline saving for retirement, especially when they involve helping loved ones, but this can have long-term consequences. For example, putting money you could have saved for retirement into a 529 plan for your child’s education could end up costing you a lot.
“You can borrow for education, but you can’t borrow for retirement,” says Parrish. “People don’t always realize this.”
Solution: The solution is actually very simple: Create a budget in which saving for retirement is one of the essential items, and don’t deviate.
Assuming that your income will increase by the time you retire
Your position may feel secure, especially if you’ve been employed for a long time, but artificial intelligence is disrupting the labor market and putting many people’s jobs at risk. AI was the leading cause of job cuts by US-based employers in March, according to one report From Challenger, Gray & Christmas, a global outplacement and executive coaching company.
“I’ve seen a lot of our clients ages 40 to 55 lose their jobs over the past two years,” says Emily Green, head of wealth management at Ellevest in New York City. Many older workers were unprepared, she says, with some simply assuming “they were going to make ‘X plus inflation’ by the time they retired.”
Solution: Prepare for the worst-case scenario by building a solid emergency fund. Many financial planners recommend that working adults save enough to cover at least three to six months of essential living expenses.