According to the Oxford English Dictionary, “middle age” is referred to as the period of life between 45 and 65.1 So when you’ve reached your 50s, you can consider yourself middle-aged and in need of tips to avoid certain money mistakes typically made around this time of life.
If you take a look at the article about money mistakes made in our 40s, you’ll see it begins with the idea that “you’re getting closer to retirement”. Well, when you’re in your 50s, you’re even closer to retirement and knowing where your finances stand can be crucial to your future financial success. The money mistakes you make (or don’t make) during your 50s, will not only impact your own future but that of your family and beneficiaries, if you have any.
Here are the top 5 money mistakes to avoid in your 50s…
“It’s too late to start saving”
People often think that if they didn’t start saving in their 20s or 30s, it’s too late to start later in life. They erroneously determine that initiating a savings plan in their 40s or 50s is useless and by the time retirement comes, they’ll have as little money to live off of than if they hadn’t saved any money at all.
Nothing can be further from the truth. If you decide to start saving in your 50s, don’t mistakenly think you have to put away your entire paycheck in order to catch up. Just 2% or 3% of your paycheck is a great start. With compound interest, the right investments, and dollar cost averaging, you might soon be able to invest more and worry a bit less. It’s not so much the amount you invest or save, it’s just starting to do either one that can get you on the road to an easier retirement.
Using your HELOC or 401K as an emergency fund.
This mistake was also mentioned in our article about money mistakes made in our 40s. Although a Home Equity Line of Credit (HELOC) is great to have in times of emergency, the money you use can quickly and easily turn into another debt. It’s like the old saying, “stealing from Peter to pay Paul”. You have to pay Paul back sooner or later, so it’s always best to find other means to pay for that emergency rather than using your HELOC.
Tapping your 401K as an emergency fund creates a different set of problems. A 401K is your retirement plan – savings that should be used to help pay for living expenses during your retirement. To use it on emergencies now is really only taking money away from a more secure future. Just like borrowing from a HELOC, try to find another way to pay for the emergency. When you reach your 60s and 70s, you’ll be glad you did.
Investing More in Your Children’s Education Than Your Retirement.
Parents want their children to succeed. It’s a fact of life and is nothing to be ashamed of or derided about. However, if you take care of your children’s education expenses before working on your retirement savings, it can be more difficult to catch up and make adjustments when the time comes to stop working.
Another problem with putting your children’s education ahead of your retirement is if you end up not having enough money to live off and have to borrow from your children.
Paying Off Your Mortgage While Having Other Loans
Many people nearing retirement age want to pay off their mortgage. “Without a mortgage”, they think, “I’ll have more money to spend on my other monthly expenses.” That kind of thinking is correct, but an issue might arise if you have other outstanding debt, like credit cards or auto loans, with higher interest rates.
Sure, your mortgage might be your biggest debt, but if the interest rate is lower than the rates on your other loans, it might be wiser to pay off the other loans first. Once you’re rid of those loans, yes, you’ll still be paying your mortgage, but at a lower rate. In the end, it can keep more money in your pocket and less money going to high-interest creditors who would love to have you pay them interest for eternity.
Not Updating Your Will and Insurance
When was the last time you updated your will? If something happens to you, are all financial matters taken care of? Will your loved ones get the assets they’re entitled to and that you want them to have? Did you go through any life-changing events like getting married, divorced, having children, etc.? Lots of questions, yes, but their answers can help you decide if it’s time to get a will (if you don’t already have one) or update the one you have.
And then there’s insurance… life insurance, health insurance, home insurance, auto insurance, disability insurance… the list goes on. Check with a professional to see which type of insurance is mandatory and which you can live without for the time being. For instance, if you can’t work due to an illness or injury, do you have insurance that will help pay the bills? Your insurance needs change with time so it’s always a good idea to keep up to date and make the necessary changes – or additions. It’s the best way to make sure you and your family are provided for should the unexpected happen.
See how other myFICO customers worked to avoid the 5 major money mistakes, no matter what their age. Visit myFICO forums to get some good tips and advice.