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Want to Retire in Your 50s? Here’s How to Plan in Your 40s

Early retirement doesn’t magically happen for most people. 

Retiring in your 50s is a dream many aspire to achieve. Having the freedom to explore your passions, travel, or simply enjoy a slower pace of life is a worthwhile goal. The current statistics show the average person retires at around age 64. However, with careful planning and purposeful spending, it is possible to retire earlier. 

If you’re in your 40s and have set your sights on early retirement — it’s time to take action. 

Here’s how to plan for retirement in your 50s: 

  1. Know how much you need. 
  2. Increase your income. 
  3. Maximize your investments. 
  4. Invest in your health. 
  5. Consult a financial advisor. 

These five steps will help you retire in your 50s and enjoy a comfortable retirement. 

1. Know How Much You Need

You need a target to aim for when it comes to retirement savings. The average life expectancy for men and women is age 73 and 79, respectively. If you live to an average age, you will need to plan for 20-30 years of living (hopefully more!)

While you can’t predict the exact dollar amount you will need, a common thought is that you will need 60-100% of your pre-retirement income each year, depending on your desired lifestyle. 

When deciding on how much you will need for retirement, here are some questions you should ask yourself:

  • What kind of lifestyle do I envision for my retirement?
  • Will my living expenses stay the same (groceries, utilities, transportation)?
  • How often do I want to travel?
  • How much will I need for health insurance until I’m eligible for Medicare?
  • Will I be helping my kids pay for college?
  • What (if any) debt will I still be obligated to pay?
  • How many income streams will I have?
2. Increase Your Income

Your income is your most powerful financial tool. Once you retire, you are going to be shutting off your main revenue stream. If you retire in your 50s, you’ll need to hold off accessing your retirement accounts until you’re 59½ to avoid paying penalties. Adding additional income can help fund your investment accounts now, and create revenue streams that offer a stopgap until you come of age. 

While a job change isn’t the right choice for everyone — it may be something to consider if you’re only receiving 3-4% raises each year. People who switch jobs on average make almost 10% more than their peers who stay at their current employers (and that’s just an average). 

Beyond switching jobs, you can focus on adding additional income streams. The IRS reports that wealthy people have seven types of income. Don’t be afraid to start a side business or add consulting to your repertoire. It is reported that 40% of Gen-X and 50% of Millennials have a side hustle.

Income-producing assets are another popular way to create additional streams of revenue. While you’re still in your current earning phase,  any income you make from these assets can be used to reinvest. Once you are ready to retire, you’ll have multiple streams of income to fund your lifestyle. 

Here are some examples of income-producing assets:

  • Bonds
  • Certificates of deposits
  • High-yield savings accounts
  • Real estate
  • Private equity Investing
  • Money market accounts
3. Maximize Your Investments

Maximizing your retirement accounts should be first on your investment list. Once those are fully funded, you can continue to build your wealth through other investments (some I’ve already mentioned). 

Typical investment strategies include more risk while you’re young and then gradually move to more conservative investments as you near retirement. More risk can often mean higher returns, but if your goal is retiring early in your 50s, traditional investment strategies may not work for you. 

Diversifying your income across many different types of investments can help prevent financial worries during economic waves. In times of economic recession, Wall Street doesn’t always follow suit. The stock market bounces between bull and bear markets, but historically, the return rates average 10%.  

4. Invest in Your Health

While your physical and financial health may seem unrelated, healthcare is the leading expense for retirees. Even though when you retire In your 50s you’re likely to still be active and healthy — prevention is key when it comes to health. Investing in your health during your 40s can help reduce lifetime healthcare expenses. 

If you qualify for a Healthcare Savings Account (HSA), you should maximize your account contributions for future medical expenses. An HSA account is unique because it’s tax-free for medical expenses. You don’t pay tax on the contributions, any interest earned, or qualified withdrawals. In 2023, individuals are allowed to contribute up to $3,850 per year. Maximizing your HSA contributions will help save you money on taxes now while stashing money away for medical costs during retirement.  

Investing in your health goes beyond typical medical preventative care like cancer screenings and flu shots (although you should still do those). Research shows that strength training, moderate aerobic exercise, and flexibility have all can reduce injury rates and increase life expectancy. 

Whether you decide to commit to a gym membership, hire a personal trainer, or attend a few more yoga classes a month, your body will thank you. By prioritizing your health in your 40s, you’ll not only feel better but will help you reduce one of the largest expenses for retirees. 

5. Consult a Financial Advisor

Retirement needs are not one size fits all. Even with the most sophisticated calculators, one cannot account for every contingency. Including a professional in your planning can ensure that you cover all of your bases when planning your retirement in your 50s. 

At Legacy Planning, we have years of experience helping high-net-worth individuals create the retirement of their dreams. To see if we can help you plan to retire in your 50s, click here to schedule a conversation today.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.


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