It's Not Too Late: How to Reset Your Money Habits at 50

14:50Elizabeth Ayoola:Well, David is already doing some of the things that I would say are awesome, such as creating savings buckets and opening a Roth IRA. But in order to continue taming that impulse spending, I think one of the things that helps is automating your savings. Y 'all know I have an impulse spending problem sometimes. And what has helped me is knowing that all my savings comes out first and I'm only allowed to spend what's left over. Now, granted, there are credit cards and people could still overspend, but at least it gives you a mental check and says, hey, I have whatever it is, $500,$200 there for my account and I shouldn't go over this amount.

15:24Sean Pyles:I hope that David is doing that with their different savings buckets. One thing I wanna know is really what they're saving for because it's great to save, it's great to have a retirement account, but I think that they should have different specific purposes for each of the savings buckets and for what they wanna use them for down the road. And also when it comes to investing, they may wanna think about a taxable brokerage account so that they don't have to deal with some of the restrictions around their Roth IRA and other retirement accounts. Just know what you wanna have these different pots of money deployed for in the future.

15:57Elizabeth Ayoola:I want to implore David to do something fun as well, which is create a spending bucket if David hasn't already. And that is simply to have fun with. David, ain't nothing wrong with spending down to zero if it's your fun money, okay? So create a bucket for your fun money and then you can have a ball spending it.

16:15Sean Pyles:I also really wanna encourage David to think about how much they would need in retirement because they said they're not trying to make up for lost time. I kind of want to encourage them to try to do that at least a little bit because we know that we're going to need a lot of money to fund our retirement. And a lot of people just don't have enough saved. Now, according to the Federal Reserve, average retirement savings for someone between the ages of 45 and 54, that's around$313 ,000. The median is about$115 ,000. And again, we're all going to probably need a few million dollars to comfortably fund our retirement.

16:52Sean Pyles:So I don't want to scare anyone with these numbers, but just do what you can to get closer to that number.

16:58Elizabeth Ayoola:And in terms of not scaring people, I always remember the first time when I started saving for retirement and I calculated my number and I was like, oh, my God, I need$4 million and I have zero. And then later I remembered compound interest is in my favor. And the most important thing is to save consistently, and then that money will grow over time.

17:16Sean Pyles:And so that's why it's really important for David to think about these different savings accounts and what they might need in the shorter term. That would be like their high-yield savings account money that they would probably use within five years or so. And then longer term, maybe five to ten years, they could put money into a taxable brokerage account. And then for maybe 15 years down the road when they're looking at retirement, that would be for things like the money they have in their Roth IRA or other retirement accounts.

17:39Elizabeth Ayoola:Well, let's move on to some specifics of accounts, which is the bulk of David's questions. Now, one of the things that first came to mind when I read this question is that David could utilize catch-up contributions. For those who don't know what those are, if you're 50 or older, you have the chance to save extra money for retirement in addition to the standard annual IRS limit. And then you can save in a range of accounts that includes a 401k, 403b, 457b, or an IRA.

18:07Sean Pyles:The whole alphabet and letter soup of different retirement accounts there. Yes. And one thing that's cool, too, is that there's also a super catch-up contribution that's thanks to the Secure Act 2.0 from a few years back. Now, if you have an employer-sponsored plan and you're between 60 and 63, which isn't quite David's age range yet, but one day will be, they can contribute an even higher amount. And we'll have a link in the episode description as more information about that because it gets a bit technical.

18:33Elizabeth Ayoola:We'll quickly go over some of the contribution amounts for retirement savings account that David or anybody at that age could utilize. For IRAs, if you're 50 and older, you can contribute$1 ,100 extra. Now, the standard limit is$7 ,500. So I'm going to do the math for you guys. Basically, David could contribute an entirety of$8 ,600 into an IRA.

18:57Sean Pyles:And that's for 2026. It's important to note that these limits change pretty much every year.

19:01Elizabeth Ayoola:They do. Usually going up. Praise God. Yes.

19:04Sean Pyles:I've never heard of them going down, thankfully. But that number is still very low. We talked about how we'll need millions of dollars for retirement. So just that$8 ,600 for those who are over 50 and$7 ,500 for those who are younger, to me, it's a frustratingly low amount of money because I wish everyone had the access to workplace retirement plans that allow you to save over$20 ,000 each year if you max them out. And that is actually going to be one of your best ways to have enough to fund your retirement is using these workplace plans. But again, we don't know David's employment situation, so they may not have access to that.

19:37Elizabeth Ayoola:And speaking of workplace retirement plans, if you have one of those, the contribution limit goes up from the standard$24 ,500 to$32 ,500 since you can make a catch-up contribution of$8 ,000.

19:51Sean Pyles:Again, that's another area where I'm so frustrated that these employer workplace retirement plans are so much better than what you can have in an IRA. Consider the catch-up contribution that is$8 ,000 compared to$1 ,100 with just an IRA. It's not really that fair to me.

20:06Elizabeth Ayoola:It's not. And it's a huge difference, especially if you use a compound interest calculator and look at the numbers. You can see a stark difference there. There is a new change that folks should be aware of, though. High earners whose wages were$150 ,000 or more in the previous year have to make catch-up contributions to a Roth IRA or workplace retirement account starting in 2026. Now, what does that mean? That means that you have to pay taxes on your contributions now versus in retirement.

20:34Sean Pyles:Basically, the government wants their tax money now because a bunch of people have money in traditional accounts and they wait a while to pull the money out. The government says, not so fast. Give me that tax money.

20:45Elizabeth Ayoola:But if you're anything like me, I actually wouldn't mind that because I would rather as many tax dollars as I can during retirement.

20:51Sean Pyles:And there is a plus side, too, where if you have been saving primarily or exclusively in traditional accounts, having to put some money into a Roth account can give you some nice tax diversification in your retirement years if you don't have that already. But I'm assuming that people who are earning that much money mean I would hope that maybe they are already thinking about these things since they have so many dollars at their disposal.

21:11Elizabeth Ayoola:Catch-up contributions aside, another low-hanging fruit that David could utilize is an employer match. And that's essentially when your employer matches you dollar for dollar for a certain amount that you contribute to a retirement account. And it's free money. This is the thing that I just harp on and on about why people should use it. You literally only have to contribute up to a certain amount and you get free money from your employer. Where do we get free money? Do you ever get free money, Sean?

21:38Sean Pyles:Hardly ever, except in my 401k match or if I find a dollar on the street, which honestly has not happened in so many years because people don't carry cash anymore. Whatever happens to the dollar on the street? I miss that.

21:49Elizabeth Ayoola:Core childhood memory unlocked.

21:51Sean Pyles:David is wondering how to maximize their savings. And this is one of the best ways just to accelerate what you're already putting in. It can really help boost what he'll be having available in retirement. Now let's visit one of our favorite accounts, the High Yield Savings Account. And this, it seems like I hope David is already using with their savings bucket strategy. We talk about these accounts all the time. But for those who don't know, they're typically offered by online banks. They'll offer you a much better yield than you would get at a brick and mortar bank. And it's one of the best ways to at least stay apace with inflation with your dollars.

22:22Sean Pyles:You might be able to get an APY, a yield of around three, three and a half percent, depending on the bank. It's been kind of going down over time, which isn't great, but hey, it's still better than what you'd be able to get at an old fashioned kind of bank. And this is one of the best places, if not the best place to park your savings.

22:39Elizabeth Ayoola:Considering David's age as well, having extra cash can be helpful, especially to weather market swings, because David will need to leave their money inside of their savings accounts, particularly retirement for a certain amount in order not to be penalized for withdrawing their funds.

22:55Sean Pyles:Something I am really curious about is how much money David has at their disposal. What does their budget look like? Because we talk a lot about the 50-30-20 budget, right, where you have 20 % of your income going towards additional debt payments and savings. So hopefully David doesn't have a lot of debt. We know that most people have some, but I would love if they could put as much of that 20 % into different savings categories. and honestly since they are a little behind the ball savings wise maybe actually pull from the 30 your wants category and just try to accelerate whatever you can into your savings because we know the more you can tuck away the more you'll have in the future it's just simple math here so i would really encourage them or anyone who wants to save more money to get super clear on your numbers what are you working with right now and how can you get to a goal number down the road NerdWallet has some really handy savings and retirement calculators.

23:50Sean Pyles:We can link to them in the show notes of this episode. I highly recommend playing with them to get some concrete figures for what you can save and what it might turn into over time.

23:58Elizabeth Ayoola:I started saving for retirement pretty late, so my rate had to be higher than maybe someone who was saving at 20 in order for me to feel like I could catch up quickly.

24:06Sean Pyles:And think, too, about the motivation behind all the savings. For David, it's because they, I assume, they want to have a really comfortable retirement, have some kind of cushion to help them not just live hand to mouth when they're older. So getting clear on this goal might make it easier to sacrifice some things now. So that might mean not going on a vacation and having some extra cash that you put into your savings. Sacrificing little things here and there can add up to more savings overall, and that's really what David needs right now.

24:33Elizabeth Ayoola:I want to talk about another account that David could use to maximize their savings right now. David, I don't know if you have a health savings account. This is one of my favorite accounts because of the triple tax benefits. Your contributions are tax deductible. Your money gets to grow tax free and then you can make qualified tax free withdrawals. Essentially, it's a goldmine, David and everyone else. Recently, I've been speaking a lot about the importance of saving for health care costs as you age because it can be so expensive. And we don't know where our health is going to be in the next 5, 10, whatever, 15 years.

25:08Elizabeth Ayoola:And we want to be as prepared as we can be. Now, you guys know I love a good data point. Guess what's coming out?

25:14Sean Pyles:Your handy notebook for the visual people watching us on Spotify and YouTube.

25:18Elizabeth Ayoola:Yes, it's a black NerdWallet notebook. OK, so the 2025 Milliman Retiree Health Cost Index found that a healthy 65 year old male retiring in 2025 with original Medicare, Medigap and Medicare Part D would spend$275 ,000 on health care expenses in retirement, which is assuming that they live 23 years.

25:45Sean Pyles:Wow. That's more than a lot of people have say for retirement, as we saw earlier.

25:50Elizabeth Ayoola:Right, right. But I do want to say that Medicare would pay part of the cost, but that male would still have to cough up$185 ,000. And now that number goes up for women because we're expected to live longer. I don't know how I feel about that in this context. But if we lived for 25 years in retirement, that cost would go up to$203 ,000 for us.

26:14Sean Pyles:Jeez, better start saving, Elizabeth. I guess you are. You have your HSA, right?

26:17Elizabeth Ayoola:I do. I do. and I love seeing that number go up. Luckily, I'm healthy, so I don't end up spending a lot on healthcare expenses every year, so I'm able to save that money and invest it.

26:28Sean Pyles:Yeah, that's the challenge and the opportunity with an HSA is that you can use the money now for things like sunscreen or medical visits or operations, or you could hold onto that money and use it just for kind of a retirement healthcare savings account. It's a tough balance. Sometimes you have to pull from that just because something pops up and you don't have the cash on hand. But if you can cover your medical expenses from whatever you have in savings, that might be the better route. So longer term, you have this money growing in the background because you can invest the money that's in an HSA typically.

27:00Sean Pyles:And that is a huge way to accelerate your savings. The catch though, is that you do have to be on a high deductible healthcare plan, which not everyone has access to.

27:08Elizabeth Ayoola:That is true. And I have an, oh my God for you, Sean.

27:11Sean Pyles:Okay.

27:11Elizabeth Ayoola:Ever since that episode where you were talking about being able to potentially buy a mattress with your HSA funds. I sat down one day and went down a rabbit hole on the HSA and HSA website. I don't remember what it was called, looking at all the potential things I could buy. And guess what?

27:31Sean Pyles:The list is really long.

27:31Elizabeth Ayoola:It's long. Are you buying a

27:34Sean Pyles:new mattress, Elizabeth?

27:35Elizabeth Ayoola:No, no, no, no, no. I'm not getting a new mattress, but I did get maybe six months worth of tampons. And I also got sunscreen.

27:44Sean Pyles:Sunscreen is not cheap. But how do you think about that kind of push pull between pulling out money now for expenses you need today versus waiting and having all that money in retirement?

27:54Elizabeth Ayoola:I didn't think too heavily or rather deeply about it because honestly, it cost me maybe under$100. And it's not going to be a recurring expense because I'm going to use it over the next couple of months. I think a part of me was just also like, wow, I can use my HSA funds for these things, I think I got some satisfaction out of it, especially considering I invest most of the money in my HealthSavers account. And you will be proud to know there were a whole bunch of things on there that I initially thought I needed and then realized were wants and I took out my card.

28:24Sean Pyles:What is that Oura ring?

28:25Elizabeth Ayoola:The Oura ring is on there. I was like, do I need that?

28:29Sean Pyles:I've been tempted about those, but no, you don't. They're not cheap. Exactly. And they also come with a monthly subscription. I've been tempted before, but I'm not there yet. I got my Apple Watch, I guess.

28:38Elizabeth Ayoola:Same. So I was like, girl, just use what you have. All right. So last thing on HSAs, if you are 55 or older and you're not enrolled in Medicare, guess what you get? A catch up contribution of$1 ,000 to a health savings account.

28:52Sean Pyles:Thinking about investments, because we've mentioned them a few times, we should also talk about timeline and risk management and how they might want to invest this money. Because we know that the shorter your timeline, when you'll need this money, the less risky your investments should be. That doesn't mean that David can't invest at all, but it's likely that they'll want to have a pretty conservative portfolio so that if they do need this money, it can ride out any ups and downs in the stock market and they'll still have something to pull from in 10, 15 years.

29:23Elizabeth Ayoola:And some of those more conservative investment vehicles might be certificates of deposits or bonds. But honestly, we are not here to give David or anyone investment advice because that is the job of a financial advisor. And David, I would encourage you to speak to one. You could do a fee-only advisor. We have a range of them at NerdWallet Wealth Partners that you can choose from. And what can happen is they can actually give you a detailed and tailored financial plan according to your age, your income, and your financial goals to help you have a better, more concrete idea of what to invest in and how to maximize your savings.

29:59Sean Pyles:Yeah, that's a great point. Talking with an advisor is super important when you're in this sort of pre-retirement phase of your life, when you're beginning to look at the end of your working years, taking stock of all the money that you do or maybe don't have at your disposal and trying to make some kind of plan for that comfortable retirement. Getting an outside expert opinion is really crucial because it can be so overwhelming to do this on your own.

30:21Elizabeth Ayoola:But David and anyone else, if you do want to do it on your own, an easier route versus stock picking might be to use a target date fund, which adjusts risk as you age. Or you could use a low cost S &P 500 index fund for a diverse portfolio.

30:36Sean Pyles:Fortunately for David and those who maybe don't have a ton safer retirement, there are still Social Security benefits. A lot of people think that they are going to go away, but that is propaganda. Do not fall for it. We still have these benefits, and if we want them long-term, we will fight for them. So don't lose hope, people. We can have these benefits. And David likely has access to some of them. If they don't know how much they might be earning, you can actually go to ssa.gov. That's a social security website run from the government, and you can get an estimate of how much you would actually be earning in retirement.

31:09Sean Pyles:And it might be worthwhile to wait to pull those until full retirement age or beyond to maximize benefits here, since it seems like David doesn't have a lot saved.

31:18Elizabeth Ayoola:When I'm saving for retirement, something that I forget is that I will have access to Social Security benefits when I retire, but I guess to motivate me, I don't factor in that income. But since David is starting late, I think it would be a good idea to combine that Social Security income that you'll potentially get with what you are trying to save. Now, I always love these conversations around Social Security because it's like, well, when should I take it? Should I wait until the full retirement age? Should I wait until beyond that or should I get it earlier at the age of 62? And it's always it depends.

31:50Elizabeth Ayoola:And I think the part that always strikes me is, well, what if you wait until the age of 70 and you get the maximum benefit, but then you die at 72 and then you didn't even get to enjoy your money. Right. So it really is such a personal decision. And when you're making this decision, some things that you want to think about is your history in terms of your health. You want to think about your life expectancy. And the most important one is your income. How desperately do you need the money?

32:14Sean Pyles:Also looking at the break-even point, when the amount that you would earn by delaying outpaces the amount that you would get just by taking it immediately, looking at that and considering these factors can help you make that decision. So it's a really tough personal decision. A lot of people just decide to take the benefit immediately because they frankly need the cash, and that's okay. But know that you are sacrificing some benefit over the long run, and I think it's usually around 80 or so that you begin to hit that break-even point. So just think about that and whether you'll be living into your 80s, because a lot of people will, even if they don't think they are.

32:47Elizabeth Ayoola:Oh, my gosh. When do you want to die? Sorry, that's kind of morbid. But what age would you like to die? We've talked about this. Living to 500.

32:52Sean Pyles:I'm going to be a robot.

32:52Elizabeth Ayoola:Oh, my gosh. Sean, please. Well, I used to say my 70s. But now that I think, well, I potentially may have grandkids, I'm like later. But imagine living to 100. How much money you need? And I don't know. It's very overwhelming sometimes.

33:07Sean Pyles:I think that that's why we need a bigger social safety net. more social security benefits. So that's the argument for that.

33:13Elizabeth Ayoola:Well, any other considerations that you would like to throw out there for David, Sean?

33:17Sean Pyles:I just want to implore David to go back to the why behind all the savings, what they want and what they envision is going to come of it, and just encourage them to get super clear on their numbers, like we've mentioned before, to know exactly what they can save, how they're going to save for it, and when they'll use that money.

33:31Elizabeth Ayoola:In summary, if you're starting your retirement savings journey at the age of 50, here are five things that you should consider doing. One, have a clear goal of what you're trying to achieve. Two, utilize catch-up contributions for IRAs, workplace retirement plans, and a health savings account. Three, build up a robust cash reserve over time. Four, assess your potential future Social Security benefits. And five, evaluate your investment portfolio to ensure that it aligns with your risk tolerance and your time horizon.

34:03Sean Pyles:Well, I think that we did a great job outlining a few different ways to save and how they can begin to optimize this journey. And David, I hope this helps you begin to really save for your golden years. And that's all we've got for this episode. Remember that we're here to answer your money questions, so send them our way. You can hit us up on the Nerd Hotline by texting us or leaving us a voicemail at 901-730-6373. That's 901-730-NERD. You can also email us your question to podcast at nerdballup.com or leave a comment on Spotify or YouTube.

34:33Elizabeth Ayoola:Follow Smart Money on your favorite podcast app that includes Spotify, Apple Podcasts, and iHeartRadio. to automatically download new episodes.

34:40Sean Pyles:And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. Some companies mentioned in this episode may be NerdWallet partners, but that does not influence how we discuss them.

34:56Elizabeth Ayoola:And with that said, until next time, turn to the nerds.