3 Surprising Ways to Prepare for Retirement in Your 50s
Choosing the “right” way to invest and plan for retirement isn’t simple. Each situation is different, and the best choices will be heavily dependent on your finances, preferences, and plans for your golden years.
But there are ways to help boost your financial plan – and some of them might surprise you. Read on to learn about 3 strategies that often get overlooked by pre-retirees, even though they could help boost financial security when it’s needed most.
Of course, whether a given investment strategy is right for you is heavily dependent on your personal financial situation, goals, and preferences. Be sure to give careful consideration of the risks and benefits before making any big decisions.
For income – and a place to live
Many of our retiring clients are concerned about the long-term costs and benefits of staying in the family home. It’s hard to entertain the idea of leaving a place with memories and history – not to mention a garage full of old stuff. At the same time, many retirees have memories of their elderly parents struggling with mobility issues and undertaking exhausting, last-minute moves into more accessible housing.
How can you prepare for the possibility of this kind of move while also meeting your financial planning goals?
Retirement: Are You Ready? The 50+ Retirement Plan Guide
For some, purchasing “retirement-friendly” rental property could be an option, namely a smaller single-story home or apartment. If it suits your finances and makes sense as an investment – both are extremely variable from one financial situation and geographic location to another – this could be a good way to build in a back-up plan without forcing yourself to move now.
With a rental apartment, you can:
- Invest in a potentially appreciating asset that could pay for itself with rental income (please note, neither is guaranteed in any way).
- Build a back-up plan for downsizing if you need to move later in retirement.
- Take your time in finding a place that’s suitable for reduced mobility – but that you also like!
There are, of course, important risks to investing in rental property:
- You may get better (and/or less risky) capital gains through a traditional investment account.
- You may have difficulty finding a tenant, which would shift the mortgage cost back to you.
- You’ll still be on the hook for maintenance, repairs, taxes, and the other costs associated with property ownership.
- You may have trouble finding an apartment that meets your preferences for a possible place to live and which is easy or advantageous to rent out.
Be sure to carefully consider both the property value and rental market of the area you’re looking in, and think about how you would cover the costs of maintaining the unit and the mortgage should you have difficulty renting it out.
It can help to speak with an advisor and a local real estate professional to consider the potential costs and benefits for your finances and in your area.
Build late retirement income with a deferred annuity
Another key financial planning concern for pre-retirees is long-term income. One way to plan for it is with a deferred annuity.
A deferred annuity provides guaranteed income after you reach a certain age.
If you’re worried about outliving your retirement savings, you might consider buying a deferred annuity that starts at, say, age 75 or even age 85. These policies are cheaper to buy when you’re younger because there’s more uncertainty, which makes your mid-50s a reasonable time to consider them.
Notice the word policy: a deferred annuity is not an investment, and it should not be looked at as a way to get investment returns. It’s an insurance policy. For a lump sum now, you can buy the guarantee of income for life later. It can be a great way of reducing your reliance on your investment accounts to generate income, and can help reduce the risk of outliving your savings.
Of course, there are risks. The key risks you face with a deferred annuity are:
- That you’ll pass away before the annuity begins paying.
- That you’ll have short-term need the capital you put towards the annuity.
- That the insurance company which sold you the policy won’t be able to honor it in the future.
- That you could have generated more income through investing than the annuity would provide.
The risks and benefits should be considered carefully in the context of your total retirement savings, your assets, and your financial plan.
For some people, it makes more sense to boost savings contributions and make use of other assets rather than purchasing an annuity. For others, the guarantee of income in old age makes it worth the cost – even just for the feeling of greater certainty that it provides.
Boost your equity allocation
In the years before retirement, the typical course of action is to reduce exposure to equities in favor of less volatile assets, like bonds.
For many people, that strategy can make sense. But for others, it can be more advantageous to go the other way and take more equity risk. The reason is simple: while equities are more volatile, they also have a higher likelihood of long-term growth. A higher allocation to equities can mean more swings in the short run, but it comes with the potential for greater capital appreciation over time.
This strategy tends to be better suited for people who:
- Have other income sources they can turn to in retirement – so that they don’t need to withdraw large amounts during down markets.
- Have a comfort level with higher volatility – and won’t lose sleep at night because of it.
- Have a financial plan and asset base that can support higher risk taking within investment accounts.
Because of the risk of losses during market downturns, this strategy isn’t suited for those who are very risk averse or who are reliant on steadier returns in their investment accounts. But for those who want to help nudge the potential for long-term gains and income, it could be a worthwhile strategy to consider along with other retirement planning solutions.
Taking the next step
Some of these strategies might sound surprising – they may have even taken you by surprise!
But that’s the key: when it comes to retirement, there is no one-size-fits all. The right solution will take your personal finances, preferences, and planning situation into account. That’s why working with an advisor can be so helpful: a good one will help you see past the generic advice and into the possibilities that could go further in helping you.
If you’re ready to get started on your retirement plan, download our free guide to retirement planning in your 50s. It’s a great way to introduce yourself to some of the key risks, strategies, and planning issues you should be considering as you look towards the next stage of life. Download today!
Retirement: Are You Ready? The 50+ Retirement Plan Guide