Building wealth: Best moves if you’re 45 to 54

Money magazine’s 101 Ways to Build Wealth package offers blueprints for the different stages of your life on how to achieve real financial security. In tips #53 through #77, we offer advice for 45- to 54-year-olds.

  • Start saving for future expenses

    During your peak earning years, you need to ramp up your retirement savings and fight the instinct to spend it.

    53. Look into your future. Don’t let your energy flag now.

    To stay motivated to save, envision yourself in 20 or 30 years. Researchers Daniel Bartels of Columbia University and Oleg Urminsky of the University of Chicago found that people who feel connected to their future self are more willing to wait for a reward.

    You can create an aged picture of yourself at Merrill Edge’s

    54. Expect to splurge. In one test, people spent 79% more on special outlays like birthdays than they had forecast.

    The study, by Abigail Sussman of Princeton and Adam Alter of New York University, found ordinary costs easier to predict. Create an “extras” category in your budget.

  • Turn a max salary into max savings

    When you’re making the most, squirrel away the most. Some 40% of successful savers — those who built nest eggs equivalent to 10 times pay — did so by saving 15% of their incomes or more for at least 10 years, a study by Hearts & Wallets found. Here’s how:

    55. Forget your bonus. A decade ago your bonus helped you buy a house. Now use it to shore up your future. Hearts & Wallets found that the most successful “burst savers” socked away any income above the norm, like bonuses, raises, and banner commissions.

    56. Remember your age. The year you turn 50, you can start making catch-up contributions to your retirement plans: an additional $5,500 in your 401(k) in 2013; in your IRA you can put away another $1,000.

    57. Tap your phantom raise. With the payroll tax holiday over in 2013, 6.2% of your pay goes toward Social Security taxes. Once you earn more than the $113,700 maximum income subject to the levy, your paycheck gets bigger. That’s money you can save and not miss a bit.

  • Contain college costs

    58. Keep your hands off your 401(k). When college costs hit, that juicy 401(k) looks tempting. Resist.

    J.P. Morgan Asset Management crunched the price: Save a steady 8% from age 25 (with a salary of $30,000 that rises 2% a year), and you could have $1.3 million at 65 (based on 1973 to 2012 returns). Take a $10,000 loan at 33 for a home, a $10,000 loan at 50 for college, and make a $10,000 early withdrawal at 62, and that drops to $930,000.

    59. Be sure your kids graduate on time. Budgeting for them to finish in four years? Most students take five or six. “At many schools the credit level for full-time enrollment is less than you need to graduate in four years,” says Mark Kantrowitz, publisher of

    To avoid spending $18,000 (public college) to $40,000 (private) for an extra year (or two), check that your child is carrying the max course load, or suggest summer community college classes.

    Related: How much will college really cost?

    60. Go easy on the school loans. Saying no to your kid is hard, which may explain why parent PLUS loan balances have doubled over the past 10 years. But taking out lots of those loans, which carry a 7.9% rate, can be risky.

    “If you have to resort to PLUS loans to pay for college, it’s probably a sign you can’t afford the college,” says Kantrowitz. A good rule of thumb: Don’t borrow more than you can repay within 10 years or by retirement, whichever is first.

  • Know the new rules for post-50 job hunting

    With fewer jobs at your level, your search will be tougher.

    61. Give your résumé a face-lift. Lop off everything but the last 10 years. Decades of experience are nice, but employers care more about what you’ve done lately.

    62. Go where you’re wanted. Some companies seek experienced workers. Find leads at AARP and Linkedln’s site and CareerBuilder’s Prime CB (

    63. Be (or seem) tech-savvy. “Bust the myth that older workers don’t have the most up-to-date skills,” says HR expert Martha Finney. Have a strong social media presence and be able to discuss how the latest technological trends affect your industry.

    64. Bookmark this! With’s Who Do I Know tool, you can identify Facebook and LinkedIn connections who work at the companies you’re interested in.

    65. Adopt a colleague. Managers with protégés earned an average of $25,075 more a year than their non-mentoring peers, a 2012 study by workplace researchers Catalyst found. “The ability to develop talent is highly valued,” says Catalyst’s Anna Beninger.

    66. Protect your paycheck. High earners are vulnerable in a cutback and slower to rebound. A vice president over 50 takes 20% longer to get rehired than a 41- to 45-year-old one does, recruiter ExecuNet found.

    So add skills constantly, even if they’re not a perfect fit with your current job. “Companies often seek out hires who can bring new thinking,” says author and restructuring adviser Duncan Mathison.

    Plus, the older you are, the harder it is to regain your old pay after a layoff.

    Change in median earnings of reemployed workers:
    Ages 25-34: -11%
    Ages 35-49: -19%
    Ages 50-61: -23%
    Ages 62+: -47%
    Note: Data from May 2008 through May 2011. Source: Urban Institute

  • Don’t outguess the market

    67. Accept help. If your 401(k) offers advice, take it. Research by Financial Engines and Aon Hewitt found that 401(k) investors who took advantage of their plan’s advice offerings, including target-date funds, earned median investment returns that were 1.9 to 2.9 percentage points a year higher than those who did not. That adds up.

    68. Make a real plan. Investors who did financial planning had a median wealth of $307,750, vs. $122,000 for nonplanners, according to Annamaria Lusardi of George Washington University and Olivia Mitchell of Wharton School of Business.

    69. Follow these experts: To be savvier about the markets and economy, add these pros to your Twitter feed: University of Michigan economist Justin Wolfers (@justinwolfers), money manager Barry Ritholtz (@ritholtz), and investor Tadas Viskanta (@abnormalreturns).

    70. Dig into fees. Some 60% of investors have no idea how much their advisers are paid or think the advice is free, Cerulli Associates found. Figuring out the tab can be tough, especially if you own annuities or face layers of fees (1% for the adviser, say, plus extras for the actual investments). Have your pro spell out every penny so you can judge if the help is worth the price.

    71. Fight your instincts. It’s futile to try to outguess the market — but hard to resist. To strengthen your resolve to stay the course, take note of what moving in and out of stocks and bonds does to your return.


    Average fund performance: 7.05%
    What typical investors earned: 6.10%
    Note: Annualized return through Dec. 31, 2012. Source: Morningstar

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