As you grow older, your financial situation and life needs to change. While retirement seems far off in the horizon for someone in their 30’s, it’s just around the corner for someone in their 60’s. Understanding what key areas of financial planning to focus on at each age can make the biggest difference in your retirement plan and will give you more confidence in your financial decisions.
Find out what key planning strategies you should focus on according to how old you are.
If You’re in Your 30’s…
Max out Your 401(k) Match
- Each year you can max out your 401(k) by adding $18,500..etc. Contribute as much as you can afford toward this goal, but try to shoot for at least the match provided by your company.
Contribute to a Roth IRA
- A Roth is a great option for tax-free income. You may be able to contribute to your own Roth IRA but also check with your employer plan to see if there is a Roth option.
Eliminate High-Cost Debt
- If you have credit cards that have $7,000+ debt on them, you will want to work to reduce your debt. This will decrease the amount that you pay in interest going forward while also potentially improving your credit score.
Create an Emergency Fund
- Creating an emergency fund is an important goal. A general rule of thumb is 3-6 months of emergency expenses in cash or another account type easy to access and not subject to market fluctuation. Dual-income households with stable jobs may save on the lower end of the range while single income households or those with variable income may wish to shoot for the higher range.
Keep Expenses Under Control
- Creating a budget is just the first step. Once you know your expenses, you’ll have to work to keep them under control. This can mean carefully considering any major purchases or additional ongoing recurring expenses.
Save Half of Your Raises
- A good time to increase savings is when you get a raise. Bumping up your contribution towards retirement or other savings accounts by half the raise still gives you an increase in income available for spending.
Although it seems like life is moving at a million miles per hour, take the time to focus on a retirement plan. Your 60-something-year-old self will thank you later.
If You’re in Your 40’s…
Establish a Saving Goal
- Now is the time to start firming up what you think you will need to have saved for retirement and develop a strategy to make it happen.
Pay Yourself First
- We all agree we should save, but it’s difficult to prioritize it before other competing interests. Use automatic deductions from payroll or transfers to savings to help ensure that you’re paying yourself first.
Choose the Appropriate Investments
- Many people do not evaluate their investments once they purchase them. You may still have certain assets you acquired in your 20s or 30s. Reevaluate what you own to see if the investments you own still make sense for you in addition to carefully selecting new investments.
Monitor Your Progress
- Once you’ve acted, you’ll want to keep an eye on any developments to make sure you’re still on track to meet your goals. If not, an adjustment may be necessary.
Saving for your kids to go to college might seem like the highest priority, but it’s important to save for your retirement too. Establish a goal and stick to it.
If You’re in Your 50’s…
Maximize Your Retirement Plans
- Be sure to consider not only the standard contribution limits but also your catch-up contribution available to those 50 or older.
Cut Expenses if Necessary
- This is much easier to do if monitoring a budget. See if there’s any fat to be trimmed, especially with ongoing expenses which are easy to ignore.
Create/Update Financial Plan
- You may wish to work with a professional to develop a comprehensive financial plan involving all areas of your financial life as well as how they affect one another.
Create/Update Estate Plan
- You should consider getting estate planning documents drafted including but not limited to a will and trust. If you have estate planning documents already, it’s a good idea to review them annually or whenever a material change occurs.
It’s starting to get real. Want to retire in the next ten years or so? Try and focus on maximizing your retirement plans so that you’re prepared before you enter your 60’s.
If You’re in Your 60’s…
Determine Retirement Date
- Determining your goals can often be the first step in reaching them. Once you know when you’d like to retire, you can focus on strategies to get you there.
Consider Social Security Claiming Strategies
- Your decision on when and how to take Social Security benefits can have an impact not only on the amount of the benefit you receive but the taxation of your benefit as well. Examining your options for claiming will help you contextualize Social Security within your overall retirement plan.
Secure Health Insurance
- You may have a variety of health insurance options including private policies (on or off-exchange), retiree coverage or Medicare if over 65. Research your full options to see what works best for you.
- Determining what you would like to do in retirement can be as important as finding the money to make it happen. Consider the wide variety of options available from working part-time or consulting to volunteering or taking classes.
It’s so close you can taste it! Make sure that you are truly ready to enter financial freedom. Know when you should claim your Social Security benefits, take a look at your health insurance and have a game plan for what you want to accomplish in retirement.