My mom just gifted me $10,000 and I’m stumped about my next move. I’m 55, female, single, make $78,000 a year and live in Oklahoma. I have no kids. I have $60,000 left on my mortgage (with a 3% rate) and $15,000 on a car loan (8% rate).
I also have $1,000 on a credit card, which will be paid in full next month, and $4,000 in savings. I have a retirement fund through work, which is in fairly good shape, but had to reduce contributions this past year because of increasing costs.
This feels like an opportunity. Should I increase my retirement contributions, and live off of the $10,000 cash, since the cash has already been taxed? Or pay $8,000 towards my car loan and put $2,000 in savings? Or do you have better advice?
Fiftysomething Planner
This is an opportunity.
First, it’s an opportunity to take a hefty chunk off your car loan and credit-card debt. When your 401(k) is making 6%-10% a year (although that’s not guaranteed), and credit-card debt is at 23%, neutralize those dollars first. Paying off at least some of that 8% loan is equivalent to earning a risk-free 8% return, which is a good move.
A plan to pay off your debt, focus on retirement growth and maintain a healthy balance for everyday expenses: (1.) Wipe out the $1,000 credit-card debt; (2.) pay off at least a third of your car loan ($5,000 minimum); (3.) double your emergency savings to $4,000, from $2,000, and (4.) increase your 401(k) contributions, but don’t drain your cash.
Second, it’s an opportunity to re-evaluate all of your finances, making sure that your 401(k) allocation is appropriate for your risk tolerance. Talk to your financial provider about maximizing your own contribution now that you’re over 50, and ensuring that you are getting your employer match (assuming your workplace offers one).
For 2025, the employee contribution is capped at $23,500 and the catch-up for those 50-plus is $7,500 (and it’s expected to rise to $8,000 next year). The 2026 super catch-up would be $11,250, and, for those making over $145,000, catch-up contributions must be paid post-tax into Roth accounts. (Read more here.)
With a 3% mortgage rate, you’re almost beating inflation, and you’re certainly beating the market average out there right now (the 30-year mortgage rate is currently hovering around 6.2%). Given that you want to contribute more to your retirement fund, I don’t see a problem with maintaining the status quo on your home loan.
You have the right idea: By investing your available cash, you’ll make money not only on the capital you invest, but on the interest that accumulates, too. That is the magic of compound investing, where your money makes money, and it’s one of the financial concepts most overlooked by novice investors.
Having $2,000 in savings is a good start for a cash cushion. Ultimately, you may also wish to think about boosting that emergency fund so it covers at least six to 12 months’ worth of expenses. The missing piece of the jigsaw is your retirement fund: Is it $100,000? $500,000? Or $1 million? This will help determine when you can retire.
Your investment strategy changes from decade to decade. In your 50s, many advisers say you should have roughly 60% in stocks and 40% in bonds. I’m not necessarily sold on hard-and-fast rules when it comes to age; it also depends on your risk tolerance, expected longevity and how long you intend to work.
“Your late 50s may be a good time to prepare for retirement, which could leave you with extra cash to invest,” according to U.S. Bank. “Even though compound interest won’t benefit you as much in your 50s as it would have earlier in your life, it’s still important to make your money work as hard as possible as you approach retirement.”
“Consider reallocating a bit more of your portfolio to investment-grade bonds. Now is also the time to start thinking about boosting your retirement-fund contributions and to your 401(k) or IRA,” the bank says. “When you’re around 15 years away from retirement, you can start to build a clear budget to see just how much more you need.”
Your early 60s is a test run for retirement, U.S. Bank adds. “You’ll want to plan your retirement distributions for maximum tax efficiency and prepare mentally, and financially, to live on a fixed income. Before and after retirement, your investments should also be fairly low-risk to ensure you have the retirement income that works for your lifestyle.”
Do I have better advice than what you have given yourself? Only to look at the bigger picture rather than the $10,000 gift from your mother. She’s given you this money to oil the wheels of your own ingenuity, and you’ve begun doing just that. It should get you excited about axing your debt — and future-proofing these important 10 to 15 years.
Create your own opportunities.
My mother-in-law, 81, is guilting us into paying for her ‘bucket list’ trip to Italy. Do we say no?
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