How much should you have saved by 50?

Reaching 50 can feel like a big deal, especially when it comes to retirement planning. A lot of financial articles say you should have six to eight times your annual income saved by 50, but this advice doesn’t always take into account the real-life complexities like career shifts, economic downturns, or emergencies. Instead of just using the usual retirement calculators, it’s important to look at different ways of working out what savings goal is right for you at this stage. In this article, we’ll look at some unique approaches to help you get financially ready for your 50th birthday.

1. Take your lifestyle into consideration, not just empty numbers

The rule of thumb is to have six to eight times your annual income saved by 50. This assumes a single retirement path, which is a fixed income replacement level that’s the same for everyone. But not everyone has the same idea of what they want their retirement lifestyle to be like. Some people want to live a more relaxed lifestyle with fewer expenses, while others dream of active travel, new hobbies, or relocating and traveling the world nonstop. Instead of just looking at income multiples, think about doing a “lifestyle cost analysis” based on what you want your life to look like.

2. Use a Targeted Approach: The “Four Buckets” Method

One other approach that’s often overlooked is the Four Buckets Method. Instead of putting all your money in one account, spread your retirement assets across four categories: short-term (0-5 years), mid-term (6-15 years), long-term (16+ years), and aspirational or legacy. Here’s how each bucket works:

• Short-Term Bucket: This bucket is all about covering your fixed costs in your first few years of retirement. It’s usually made up of low-risk investments like bonds or high-yield savings accounts.
• Next up is the mid-term bucket. This covers years 6-15 of your retirement and you can start to diversify your investments a bit more, with a mix of bonds and stocks.
• Long-Term Bucket: This bucket is designed for the later years, so it can take on more risk because it has a longer timeframe to grow.
• Aspirational/Legacy Bucket: This bucket is for extra funds you might want to leave for family, charity, or for spending on luxuries. This can be a mix of growth-focused assets like real estate or high-dividend stocks.

3. It’s time to start thinking about your savings in terms of your skills

Instead of just focusing on saving a certain amount of money, think about your marketable skills and consider freelancing, consulting, or part-time work as potential sources of income in retirement.

A skills-based savings approach is all about looking at what you can offer the job market after you retire. This approach helps you save for retirement while also giving you the option to delay withdrawals, which gives your investments more time to grow. For instance, if you’re an accountant or a teacher, there are more opportunities for remote consulting, tutoring, or project-based work. If you can make some extra cash from your skills, it gives your main retirement fund a bit of a boost, making it last longer.

4. Incorporate the 3-Percent “Maintenance” Rule”

The 3-percent rule is a pretty standard way of giving financial advice. It suggests withdrawing 3% of your savings annually before retirement, easy as that!

The 3-percent rule means aiming at higher savings by retirement age, but it also protects you from market downturns and helps you avoid outliving your savings.

5. Take another look at your debt strategy

It’s not just about building your savings. You should also focus on reducing high-interest debt to boost your financial security. Paying off your credit cards, student loans, or even your mortgage can make a big difference in the quality of your retirement.

Think about combining debt reduction with saving money. The idea is to balance your savings with debt repayment so that you’re debt-free by the time you retire.

6. Use the “Gap Year” Method for Cost Reduction Testing

One way to figure out how much you’ll need to save is to do a “gap year”. This means living on a reduced budget for a year before you turn 50. Spending less also lets you test out your retirement lifestyle, which can show you if you can stick to your planned budget or if you need to make some changes.

This method helps you figure out if your retirement budget is sustainable and also shows you where you might need to make changes, like cutting back on dining out or travel expenses. During this time, you can also test how it feels to rely more heavily on investment returns. You may even discover new ways to cut costs without compromising your quality of life.

7. Consider a Staggered Retirement Approach

A lot of people think that when you retire, you just stop working altogether. But more and more people are choosing to work in some capacity while they’re still retired. A phased retirement approach is when you gradually reduce your working hours or move to part-time work. This way, you can keep earning income and reduce the need to withdraw from savings.

For instance, if you’re in a field that allows for part-time work or consulting, think about gradually cutting back on your hours once you start approaching retirement. Some companies allow senior employees to work reduced hours towards the end of their careers. This strategy can help you move from full-time work to retirement in a easier and smoother way.

8. Run a “Downsize Simulation”

If you’re open to relocating or downsizing, why not try living in a smaller home or in a different, more affordable city for a year? Downsizing is a great way to boost your savings, but it’s also a big emotional decision. By trying out a smaller lifestyle, you’ll get a better idea of the financial benefits, like lower housing costs, property taxes, and maintenance.

You could even try renting out your home temporarily and moving to a smaller apartment, using the cost savings to increase your retirement fund. This way, you can get a feel for life in a smaller space or new location before making a big lifestyle change.

Disclaimer: This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.