The path to becoming financially secure is not linear. Nor is there a one-size-fits-all approach.
But burying your head in the sand for saving and investing, whether for retirement or any other goal, is probably the worst strategy.
Individual circumstances make everyone’s journey slightly different, but no matter your age, there is always a vision. You may change it over the decades, but at least you have some goal, and an idea of where you stand in relation to that goal. Add a margin of error because no one knows what life or the stock market will bring.
This path—and the choices you need to make—will look different depending on your age, your life-changing moment, and the lifestyle you experience. One should not have the same mix of stocks and bonds in one’s portfolio a few years into retirement as one just starting one’s career. A baby or an empty nest, a new business or business failure, divorce or illness can all change your ability to save.
Retirement is, of course, one of the biggest financial goals. There’s no one-size-fits-all answer to how much money you’ll need or how to go about it. And saving can be difficult and involves sacrifice. But there’s one quality of doing so that’s often underappreciated: That money gives you more control over your life and how you spend your time — which determines how happy and comfortable you are. shall be.
These tips can help you get there, no matter what stage of life you’re in:
The 20s
Retirement seems so far away. But this may be the most important time to start saving, as people in their 20s can take advantage of the power of compounding. This is when an account’s repayments and interest increase every month, year after year, over decades.
Paul Merriman has a fascinating explanation of how you can make yourself a millionaire by saving for retirement for just five years if you start at age 25 and do nothing after that.
Of course, this is also the time when you may be making the least amount of money in your career and budgets can be tight. You may be balancing multiple money goals and responsibilities.
Still, here are some tips to get your savings on track:
Retirement seems so far away. But this may be the most important time to start saving, as people in their 20s can take advantage of the power of compounding. This is when an account’s repayments and interest increase every month, year after year, over decades.
Paul Merriman has a fascinating explanation of how you can make yourself a millionaire by saving for retirement for just five years if you start at age 25 and do nothing after that.
Of course, this is also the time when you may be making the least amount of money in your career and budgets can be tight. You may be balancing multiple money goals and responsibilities.
Still, here are some tips to get your savings on track:
The 30s
This is the decade when you’ll be buying your first home, getting married, starting a business, starting a family, or a combination of all of these. That’s a lot of financial responsibility. But that doesn’t mean retirement accounts should be forgotten.
Ideally, according to a guideline from Fidelity Investments, a 30-year-old’s salary should double at that point. Many say it’s not possible, not with rent and mortgages, to pay their student loans or children’s college funds, support for their parents and other bills.
Fair enough, but the point remains: retirement should not be forgotten. If you’re living paycheck to paycheck or paycheck to paycheck, you should still try to set aside something—anything—into a retirement account, and then commit to increasing that contribution when the budget allows.
This is the decade when you’ll be buying your first home, getting married, starting a business, starting a family, or a combination of all of these. That’s a lot of financial responsibility. But that doesn’t mean retirement accounts should be forgotten.
Ideally, according to a guideline from Fidelity Investments, a 30-year-old’s salary should double at that point. Many say it’s not possible, not with rent and mortgages, to pay their student loans or children’s college funds, support for their parents and other bills.
Fair enough, but the point remains: retirement should not be forgotten. If you’re living paycheck to paycheck or paycheck to paycheck, you should still try to set aside something—anything—into a retirement account, and then commit to increasing that contribution when the budget allows.
The 50s
Now retirement is not really far away. So spend more time thinking about when you want to retire and what your expenses might be. Take an honest look at your finances. Estimate your Social Security benefits using the My SSA account with the Social Security Administration, and run a few scenarios of retirement income and needs.
Retirement accounts allow catch-up contributions for people age 50 and older, so take advantage of this opportunity to grow your savings.
You should still have plenty of stocks in your retirement accounts because that money needs to grow over the coming decades, but build funds that will allow you to sell investments in the event of a market downturn at the start of your retirement. Can be used instead of being.
- Keep analyzing your spending (this is one of those perpetual rules of thumbs in the personal finance world!)
- Talk with a financial planner, or even an adviser at the firm housing your retirement accounts if you don’t want to work with a professional more closely, to review your asset allocation; are you properly invested for the future, or too heavily in equities or bonds?
- Create a My SSA account, which allows you to see an estimate of your Social Security benefits as well as review your work history. As a bonus, this can protect you against identity theft.
The 60s and 70s
These are the decades when most people want to stop working. While you can’t control time, you can still do a lot to secure your finances.
Don’t go into retirement with your eyes closed. Analyze your sources of income in retirement: Social Security, savings (including retirement accounts), pensions and more. Should you look into annuities, after careful consideration and guidance from a trusted professional?
Think carefully about when you will claim Social Security. People can start receiving their Social Security benefits at age 62, but not everyone should. Americans who have paid into the system and are fully covered receive 100% of their benefits at their full retirement age, depending on their date of birth. People who claim before their FRA get a reduction for each month before that FRA, while people who delay their benefits until age 70 get a bonus.
Not everyone can afford to delay Social Security benefits, even for a year. Just know that the decision, no matter what, also affects spousal and dependent benefits.
It’s also time to investigate the cost of health care. After all, Medicare, which becomes available at age 65, isn’t free. People who retire before age 65 should build health insurance into their budget while waiting to be covered by Medicare.
And just because retirement is here doesn’t mean portfolios should be mostly invested in bonds. Yes, retirees need fixed assets to provide protection, but retirement can last another two or three decades. Without a healthy mix of stocks and bonds, you run the risk of running out of money in old age.
Do this in your 60s and 70s:
- Take account of all of your assets and liabilities — and the type of any debt you have. For example, a reasonable mortgage isn’t necessarily bad in retirement if it fits into the overall budget and spending plan, but consumer debt should be squashed before retiring.
- While in your early 60s and healthy, consider long-term-care insurance. Not interested in that type of policy? That’s fine, but have a plan for how you’ll pay for at-home aides, a nursing home or other long-term care needs.
- Focus on your health, not just your finances. Stay active, learn a new skill, take on a hobby, call up family and friends.
- Maintain a comfortable portfolio mix, one that isn’t so conservative that investments no longer grow over the next few decades but one that isn’t so risky you could lose all your hard-earned savings.