Your 50s are an interesting period of time. On the one hand, if you’re aiming to retire in your mid-to-late 60s, it means you’re almost close enough to start counting down to that milestone. On the other hand, you’re also not quite ready to make your workforce exit.
The investing moves you make during your 50s could set the stage for a rewarding retirement. They could also set you back big time if you’re not careful. Here are three mistakes to steer clear of in your 50s if you want to retire on schedule — and enter your senior years with a robust level of savings.
1. Dumping your stocks
You’ll often hear that as retirement nears, it’s a good idea to shift over to safer investments, like bonds, which are less volatile than stocks. But that doesn’t mean you should get rid of your stocks completely.
Having a healthy level of stocks in your portfolio will help you continue to generate solid returns — returns that allow for more generous retirement plan withdrawals when you’re older. As such, while it’s OK to slowly move away from stocks, that shift should be gradual.
Furthermore, you may still want to retire with at least half of your assets in stocks. And if you have a healthy appetite for risk, you could easily maintain a portfolio with 60% to 70% stocks during your 50s.
2. Cutting back on retirement plan contributions
When you make retirement plan contributions early in life, you give that money a lot of time to grow. On the other hand, contributions you make in your 50s have a limited growth window.
As such, you might assume that you can ease up on funding your IRA or 401(k) plan in your 50s and instead use that money for other purposes, whether it’s paying off your home or covering your kids’ college tuition bills. But curbing those withdrawals could leave you with a lot less money later in life.
First of all, during your 50s, you’re entitled to catch-up contributions in your retirement plan that could give your savings a solid boost. And even though you’ll only have a decade or so for that money to get invested, it can still make a big difference.
Imagine you’re 57 and want to retire in 10 years, and you have $500,000 in retirement savings. If your portfolio generates an average annual 6% return over the next decade, which is somewhat conservative, you’ll end up with $895,000. But if you contribute $500 a month over the next 10 years, you’ll wind up with almost $975,000. And that extra money could make a big difference in the long run.
3. Forgetting about dividend stocks
Seniors are often told to load up on bonds, not just because they’re less volatile than stocks, but also because they pay interest, which can serve as a nice backup income stream. But bonds aren’t your only option for ongoing income. If you buy dividend stocks, those, too, can pay you on a regular basis and give you added income as a senior.
In fact, one thing you may want to do is buy dividend stocks in your 50s and reinvest your dividends while you’re still working. Then, once you retire, you can start collecting those dividends and use them to pay living expenses, as needed.
Your 50s can be an exciting period of life, and if you play your cards right, they can also be the decade during which you truly secure your retirement. Avoid these mistakes, and you’ll put yourself in a great position to enjoy your senior years to the fullest.
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