Midlife is full of opportunities and new possibilities. After years of climbing the corporate ladder, you now have one eye on retiring.
In this pivotal decade, it is time to take planning for your golden years a lot more seriously.
A good way to start is by conducting a thorough assessment of your finances. Many people in their late 40s and 50s still have about 10 to 20 years before retirement comes. That’s still time to grow your wealth further or make up for any shortfalls.
#1: Review your savings
With retirement on the horizon, start thinking about the lifestyle you want when you finally hang up those boots. Find out how much you’ll need to save to make that dream a reality.
If there’s a gap between your anticipated retirement income and the amount you need, consider making some adjustments now. A good place is to start saving at least 20% of your income and trimming expenses.
#2: Get your asset allocation right
While important for any age, having the right asset allocation for your investment portfolio becomes ever more critical in this decade of your life.
As you get older, it is likely that your appetite and need for investment risk may change. Re-assessing your risk tolerance – how well you can stomach the value of your portfolio going up and down with the market – is critical.
Typically, most investors start out stock-heavy at the outset, and transition to more bonds and cash as retirement approaches.
In your 50s, it’s time to give your asset allocation a closer look. For conservative investors, you may want to consider a portfolio like Core Defensive, which is tilted towards high-quality government and corporate bonds.
For investors who are seeking higher potential returns on their retirement portfolio, a portfolio like Core Balanced might be more suitable. It holds stocks and bonds in roughly equal proportions.
While stocks are a higher-risk/higher-returning asset class, they typically rise over the long-term. If your investment timeline is more than 10 years, you should still maintain a healthy exposure to stocks.
#3: Contribute more to your CPF
Another milestone to look forward to as you pass 50 is related to CPF. At 55, a CPF Retirement Account will be created for you, and you can withdraw your savings from your Special and Ordinary Accounts after setting aside your retirement sum.
If you don’t need the money now, consider withdrawing your CPF savings at a later date. That’s because your CPF savings can earn up to 6% interest per year after you turn 55. This outstrips the interest rates for savings accounts and even fixed deposits with the banks.
And if your spouse is a homemaker, chances are that they may not have accumulated much CPF savings. To help boost their CPF monthly payouts, consider making a top-up to their Retirement Account using CPF or cash.
The good thing about using cash is the personal tax reliefs of up to $7,000 you will enjoy. Want more tax savings? Top up your own CPF account too. You will also receive up to $7,000 in tax relief while earning more interest compared to leaving your cash in the bank.
#4: Pay down debt
As you look through your finances, another item to work through this decade is paying down debt. Now is the time to pay off all major loans, from credit card balances to car loans and other obligations.
Focus on paying off loans that have the highest interest rates. Reducing your debt at this stage of life is important. Once you retire, the interest payments on outstanding loans can eat into your retirement income. This can create unnecessary stress and worse, make it more difficult for you to service your debt.
In this decade of your life, a comprehensive financial check-up is as important as a physical health examination.
You don’t have to make drastic changes immediately. It’s okay to take small steps towards fine-tuning your financial plan, like increasing your monthly investment contribution by $500, or committing to invest any bonuses received.
Your 50s may be a busy period, but taking the time to carefully assess your financial situation and investments will bring you closer to the retirement you are dreaming of.