Living well is the best revenge. To tell you the truth, I never understood that quote. The revenge part doesn’t ring true to me. Anyone who has seen at least one episode of “Breaking Bad” realizes revenge is empty. Ultimately, everyone really wants the “living well” part.
For many people, living the life we love becomes more important in our 50s. After all, we don’t want to look back and have regrets. Another 30 years isn’t guaranteed, either: That became clear two years ago when Steve Jobs passed away from pancreatic cancer at the age of 56. (Of course, it may have become clear to you long before that if you lost someone close to you at a relatively young age.)
In our 50s, we should strike a delicate balance of living well now while still planning for our future. For the most part, we can’t afford to make financial mistakes, and yet, we don’t want to put our lives on hold.
Here are five financial decisions many of us make in our 50s that may come back to haunt us in our 80s:
1. Taking on more debt. Historically, college tuition costs have outpaced inflation, and, since the financial crisis of 2008, it’s gotten worse in many places around the country. For example, tuition and fees at the University of California, Berkeley for the 2007/2008 school year was just over $8,300 a year and for 2011/2012 it rose to almost $13,000 – an increase of 10% per year on average. Parents may be faced with tough decisions as to whether or not to take out their own loans to help their children complete college. But financial planners typically counsel their clients to take care of their own retirement first, because college students usually have years to pay back those loans. Meanwhile, there are no grants, loans or scholarships for your retirement.
Consider that a 50-year-old who takes out a $25,000 loan at 7% for 10 years would have payments of $290 a month for 10 years, costing her about $35,000 in total. But if those funds could have been invested at 6% instead during the same time frame, they could have grown to over $45,000. In fact, if you left that money alone to grow for 20 years, only taking it out to live off of once you turned 80, there would be over $144,000 in your account. This lump sum, or the additional income it provides, could make a big difference in quality of life for an 80-year-old.
2. Deferring taxes. Unless you have a Roth IRA or Roth 401(k) retirement plan, you have a silent partner in your retirement plan—the I.R.S. With a traditional IRA or 401(k), your contributions are pre-tax and your earnings are tax deferred. You don’t pay taxes until you take the money out. The I.R.S. is waiting patiently for you to cash in your retirement plan so they can get their “cut” in the form of income taxes. Since we have no control over marginal tax rates, this “cut” could keep growing larger over time. When saving for retirement, many people assume they’ll be in a lower tax bracket when they retire. That may not be the case.
In the 1970s, the top marginal tax bracket was 70%, and in the early ‘80s, it dropped to 50%. Today the top marginal tax bracket for earned income is 39.6%. We have no idea where tax rates will be 30 years from now. It’s easily conceivable that taxes could increase in the future. In that case, you may regret not having invested in the Roth 401(k) versus the traditional pre-tax 401(k)—and you just might kick yourself for not converting that IRA, paying the taxes upfront and getting it over with.
3. Thinking you’ll never grow old (and get sick). The problem with long-term care insurance is that you buy it when you don’t need it. Many people wait too long, and I for one can totally understand that. Let’s face it. Typically, no one wants to buy this insurance. We don’t want to picture ourselves old and infirm, and we don’t want to pay money out of our pockets to pay for something we don’t think we’ll ever need (because we think getting old and sick will only happen to someone else). According to industry statistics, the average cost of a long-term care policy for a 55-year-old couple is about $3,500 annually. Expect costs to rise every few years as the cost to pay for long-term care escalates, but if you need it and don’t have it, you may regret not getting it.
According to the Association for Long Term Care, the sweet spot for looking into long term care insurance is between 55-64 years of age. Rates are based on your age and your health, so the earlier you get the policy the better. If you don’t qualify health-wise, game over.
4. Thinking you’ll never grow old (and will always be able to manage your own money). People have a tendency to see the future through today’s lens. In other words, we may assume we’ll always be as healthy as we are today and think just as clearly. But many people lose cognitive ability as they age. The problem is, just as the rest of our bodies age, our brain does, too! In 2004, Researchers Trey Hedden and John D. E. Gabrieli from Stanford University studied aging and the brain. They found cognition peaked at age 53 (what a disappointment) followed by a decline in all but one area including inductive reasoning, spatial orientation, numeric ability, verbal ability and verbal memory. Perceptual speed already started declining at age 25!
So in planning our finances, it might be helpful to assume we won’t have the ability to manage our finances later in life the way we can in our 50s and 60s. Some time in your 50s (maybe age 53) might be time to work with a financial advisor to map out retirement income strategies for your 70’s and 80’s and beyond that won’t require constant analysis.
5. Thinking (and acting like) you are already old. Staying physically active can make us feel better, but being in good shape can also be a good financial decision. According to the Center for Disease Control, individuals who are physically active have significantly lower annual direct medical costs than those who are inactive. In fact, the CDC reports that getting people to become more active could cut yearly medical costs in the U.S. by more than $70 billion.
Exercising and taking care of yourself is no guarantee of perfect health, but according to the 2008 Physical Activity Guidelines for Americans, being physically active helps improve your chances of living longer and healthier, helps protect you from developing heart disease and stroke, helps prevent you from developing certain types of cancer and Type 2 diabetes, as well as a long list of other benefits.
Take this simple (though not short) quiz to find out your “real age.” How well are you taking care of yourself now so you can continue to be healthy and independent well into your 80s? When I took this online test a few years ago, I came up with a result that was five years older than my actual age. That’s when I decided to become a bit less of a couch potato and more of an outdoor person. I took the quiz again yesterday and came up with a new result that was three years younger than my chronological age. Ask yourself: Are you growing older or younger each year?
I don’t know about you, but when I turn 80, I want to have no regrets. Knowing that I “lived well” will be reward enough—no revenge needed. At Deer Valley Ski Resort in Park City, Utah, I share lift rides all the time with 80-year-olds who are still enjoying their sport. Now that would be living well.
Nancy L. Anderson, CFP ™ is a fee-only financial planner with LearnVest Planning Services and a blogger forDeer ValleySki Resort. Company website isLearnVest.com(code Retire50). Follow Nancy on Facebook -Twitter.
The opinions expressed are those of the author and may not be the views of LearnVest Planning Services LLC (“LVPS”), a registered investment adviser. The advice provided is not personalized investment advice, may not be suitable for your individual situation, are not guarantees of future performance and may differ materially from actual events that occur. The author and LVPS are not endorsing, sponsoring or responsible for errors or inaccuracies by third party sources and links on which the author reasonably relies.
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