Every phase of life has its own set of things that you should avoid.
If you’re in your 50s and nearing retirement avoiding these money traps is especially important. The last thing you want to do is trip now when you are so close to the finish line.
With that said, let’s talk about money traps to avoid in your 50s.
1. Being Too Conservative With Your Money
The first money trap you should avoid is being too conservative with your money in your 50s.
Now, it’s understandable to grow more conservative with your money as you approach retirement. But, when you’re 50, or in your 50s, keep in mind that you still have about 15 years before retirement comes.
That means you’ve still got a lot of time to grow your wealth. You don’t want to be pulling all of your money out of the market and putting it into, say bonds, which is considered “safe.”
The trouble is, you’re going to lose out on another 15 years of solid returns in the market.
If you continue following the guidelines of great investors or Rule #1 investing, continue putting your money in wonderful companies that are priced lower than their true value, you can grow your wealth by a considerable margin in the years between the time you turn fifty and the time that you retire.
2. Not Setting Up A Will
Not setting up a will is the second money trap you should avoid.
You should have a will in place in your 50s.
It’s never too early to begin planning for how you will provide for your family, your kids, and your grandkids after you’re gone.
Setting up a will ensures that your family is taken care of in the event of your passing, and your 50’s are the perfect time to do it.
It may not seem like a trap right now, but it’s something that you want to do. It can save your family a lot of trouble in the long run.
3. Retiring Too Early
Avoid retiring too early.
Retiring early is only great if your money is able to last as long as you do. If you don’t have enough money saved up to provide for yourself and your family for the rest of your life, retiring early is one of the worst mistakes that you can make.
4. Borrowing From Your Retirement
The fourth money trap to avoid in your 50s is borrowing from your retirement to pay for other things. From medical bills to college tuition for your children, your 50s can be pretty expensive years.
Borrowing money from your retirement account to pay for these things is something that you really shouldn’t do.
Not only are you losing out on any compound interest when you borrow from your retirement account, taking money out of an account like an IRA or a 401K early can lead to some hefty tax penalties.
So, before you borrow from your retirement, think about how costly it will be for you in the long run.
5. Panicking When The Market Takes A Short Term Dip
The next trap you need to steer clear from is panicking when the market takes a short term dip.
The closer you get to retirement, the more concerning the idea of a recession becomes. You do have plenty of time to ride out an economic downturn and get your investments back in the green before you retire.
Most bear markets don’t last longer than a year or two before the economy recovers and stocks begin to climb back to their pre-recession levels.
In other words, panicking and selling out of your investments when you are in your 50s is one of the worst money traps that you can fall into.
Keep calm, remain logical, and understand that you have plenty of time to ride out the storm.
So long as you’ve invested in great companies, a temporary economic downturn in your 50s is nothing to panic about.
6. Thinking It’s Too Late And Doing Nothing
The biggest, worst money trap you can fall into is thinking that it’s too late and doing nothing.
Even if you turn 50 years old without having invested a single dollar over the course of your life, it still isn’t too late to save some money to retire with.
In fact, the worst thing that you can do in this situation is to continue sitting on the sidelines.
With the right approach, it is entirely possible to save up enough for retirement.
This is what I teach people to do every month in my investing workshops.
I’ve seen it all. I’ve seen people become millionaires in five years. I’ve seen people start in their late 40s, early 50s and retire just fine. It’s been done by plenty of people, and you can do it too.
It’s never too late to start.
Now I’d love to hear from you. Have you fallen into any of these money traps?
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.