Your 50s can be a tricky decade.
People in their 50s are usually in their peak earning years, and more than half no longer have kids at home. They're paying down debt, and their wealth tends to be higher than it was a decade earlier.
Consider:
- The median income for households headed by people in their 50s was just under $64,000 in 2007, according to the latest Federal Reserve Survey of Consumer Finances. Median net worth was $229,300, up from $133,100 for people in their 40s.
- Although 85% of 50-something households reported owing money, the median amount was just more than $85,000, compared with nearly $100,000 for those in their 40s and $110,000 for those in their 30s.
- Less than 4% of 50-something households have a negative net worth, compared with 6.3% of households headed by those in their 40s and 11.5% of those in their 30s. Only 5% of 50-somethings were 60 days or more late on a bill, compared with a peak of 9% for households headed by 30-somethings.
Of course, dangers abound. Recent sharp losses in retirement funds and home equity have many in their 50s worried about the future. High debt levels still can cripple finances, as can illness, disability or layoffs (see "The hidden threats to your nest egg"). Poor planning, insufficient insurance protection and boomerang kids (adult children who return to live at home) pose additional risks.
By making some crucial decisions now about timing your retirement or where you might live, you'll be better able to map out your plans.
If you want to get yourself in the best financial shape possible at this milestone, take the following steps:
Reconsider your career
Most baby boomers say they want to work at least part time in retirement. Work can have social, emotional and especially economic benefits: The longer you're employed, the less you need to save for retirement.But what if you hate your job or your industry is downsizing rapidly? (Think newspapers, retailers and U.S. auto manufacturers.) You can wait to get fired, or you can figure out what you'd really like to do when you grow up -- and see whether you can get there from here. A session with a career counselor could help; so could that venerable career changer's guide, Richard Nelson Bolles' "What Color Is Your Parachute?"
Beware the temptation to pitch it all and go back to school for years on borrowed money, however. You're unlikely to recoup the investment, and you could end up saddled with student loans in your 80s.
If you need additional training, night school -- paid for out of your current income or via federal student loans -- is usually a better bet. If you're dying to start your own business, do it as a sideline first to see if you can make your idea fly.
Put retirement on the front burner
Sure, you've got other obligations. You may still have kids to raise and educate (45% households headed by 50-somethings include minor children), and your folks may need financial help as well.But saving for your retirement still needs to be your priority. Those trashed retirement accounts need to be rebuilt -- and rebalanced so that you're not taking too much or too little risk.
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You're also close enough to the finish line now -- the median retirement age these days is 62 -- that you should begin to make definite plans about where you'll live, what you'll do and how much money you'll spend. If you don't have a specific age or date in mind, try several scenarios using MSN Money's retirement planner. MSN Money's retirement expense calculator can help you nail down the changes you can expect in your spending.
If you're thinking about retiring before age 65, when Medicare coverage kicks in, consider your health insurance options. Does your company offer retiree medical coverage? Could you be covered under a spouse's workplace plan? Would you be eligible for COBRA and/or HIPAA
continuation coverage?
Other factors to consider: Will you sell your home and move? Will you tap the equity with a reverse mortgage? How will you spend your time, and how much will it cost? (Golf and travel can be expensive pastimes.) Do you have long-term-care coverage, or will you need to set aside money to cover future care? Fidelity Investments estimates the typical couple at age 65 will need about $240,000 to cover long-term-care costs.
You also may want to use more detailed planning software, like the kind contained in Microsoft Money or Intuit's Quicken, to help you fine-tune your plan and include variables such as inheritances, different retirement ages (if you're part of a couple) and downsizing to a smaller house. Consider scheduling a visit with a fee-only financial planner to get a second opinion. You can get referrals from the National Association of Personal Financial Advisors or the Garrett Planning Network. For guidance, read "Can you trust your financial adviser?"
Accelerate debt repayment
If you're behind on retirement savings, every extra dollar should go there. If you're in good shape, though, you might want to consider getting your debt, including your mortgage, paid off by the time you retire. That will allow you to live on less (or spend more doing fun stuff, such as travel).That credit card debt should be the first to go. Once you've paid off higher-rate, nondeductible debt, you can start adding a few bucks to every mortgage payment.
Get your kids off the dole
If they're out of school and not disabled, they should be economically independent. If they're still relying on you for sustenance, you're putting their financial future at risk as well as your own.Some of the saddest letters I get are from elderly parents whose adult children are still hitting them up for cash. (See "Should parents bail out their kids?")
Review your life insurance needs
If you've got minor children or other financial dependents, make sure they'd be adequately covered if you died prematurely.If the kids are out of college, the mortgage is paid off and your spouse doesn't need your income to survive, you may no longer need insurance. The exception: if you've got a large estate (more than $2 million) and want coverage to help pay future estate taxes. If that's the case, hire an objective professional, such as a fee-only financial planner, to evaluate your options. (See "Your 5-minute guide to life insurance.")
Review your other insurance
Your earning power is still one of your greatest assets, and you'll want to protect it with disability insurance if you can. See if your employer offers long-term-disability coverage; if not, check out individual policies.Also, make sure you have adequate liability insurance. Raise the liability limits on your homeowners and auto insurance policies to the maximum, and consider adding a personal liability policy (also called an umbrella policy). As a rule of thumb, you should have liability coverage that's equal to one to two times your net worth.
Long-term-care insurance is the final piece of the puzzle. (See "No long-term-care insurance? Uh-oh.") There's no consensus about the best time to buy. Insurance agents will insist you should have gotten it in your 40s, while Consumer Reports says most people should wait until they're 65. You should at least begin learning about the options in your 50s, however, and start investigating companies that offer it. You'll want an insurance company with extremely sound ratings, of course; check TheStreet.com Ratings before signing up. You don't want to shovel tens of thousands of dollars into a company that won't be around when you need it.
Schedule all those checkups
Now that you're 50, you should be having physicals every year (guys, that means you, too). Women need mammograms every one or two years and should ask about bone-density screenings. Men need prostate exams, and both sexes need to start screening (if they haven't already) for colorectal cancers, which may include sigmoidoscopy or colonoscopy.This isn't optional anymore, folks. Your risk for cancer and other serious conditions rises as you age; you don't want to hear that you waited too long and that it's too late for treatment.
Join the AARP
Actually, you probably won't need to pay your first year's dues -- because some wag probably will buy you your premiere membership as a gag gift.Laugh along, then start taking advantage of your AARP discounts on insurance, travel, entertainment, shopping and more.
Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.