Susan D. Marshall, CLU®, ChFC®, RICP®CLU®, ChFC®, RICP®
Quite often when I bring up the subject of retirement planning I get the same response: “Oh, I’m only 60 [or 50 or 40 or 30] years old and a long way from retirement. ? I’m way too young to worry about that!”
What many people don’t realize is that, regardless of their age, they’re not too young to start thinking about retirement planning. This is because “retirement planning” is really about building wealth and security over time. It’s an ongoing, proactive approach to creating the financially secure future that everyone wants. And the earlier you start building a solid foundation, the more flexibility you’ll have once retirement arrives.
Here’s how I take a life cycle approach to retirement planning, with the ideal actions that I urge clients to take at each stage of life.
In your 20s: Lay the groundwork for financial independence
The primary focus in your twenties is on establishing good financial habits and laying the foundation for wealth building.
Key goals:
- Create a budget. Track expenses and save consistently.
- Build an emergency fund. Begin setting aside money for emergencies (three to six months of living expenses). This is essential for dealing with unexpected life events.
- Pay down high-interest debt. Start tackling any credit card debt or personal loans, to free up resources for investing.
- Begin saving for retirement. Even small contributions to tax-advantaged accounts like a 401(k) or IRA can benefit from compounding over the long term.
- Start investing. Begin with low-risk options and gradually increase your exposure to stocks or mutual funds as you learn more.
2. In your 30s: Growth phase
At this point your primary focus should be on maximizing your savings and investment growth.
Key goals:
- Increase retirement contributions. Aim to contribute more to your retirement accounts, particularly if your employer offers matching contributions.
- Diversify investments. Gradually begin building a diversified portfolio that includes a mix of stocks, bonds and other assets to balance growth and risk.
- Buy life insurance. If you’re starting a family or have dependents, securing a term life insurance policy can help protect your loved ones in case of unexpected events.
- Focus on career and income growth. This is typically a time when you may be advancing in your career, so increasing your income can provide more funds for savings and investments.
- Consider health savings accounts (HSAs). If available, use an HSA now to save for healthcare costs in retirement, as it offers tax benefits.
To Learn More: Are You Gambling with Your Financial Future?
3. In your 40s: Wealth accumulation
The primary focus at this stage of life is on building wealth for your future needs and beginning to align your investments with your long-term goals.
Key goals:
- Maximize retirement contributions. Take full advantage of catch-up contributions if eligible, and ensure you’re on track to meet retirement goals.
- Reevaluate and adjust investments. Shift your portfolio to reflect changes in risk tolerance as you get closer to retirement.
- Increase life insurance coverage (if necessary). As your financial obligations grow (e.g., children, mortgage), you may need more insurance.
- Prepare for major life expenses. This could include saving for your children’s education, buying a home or starting a business.
- Take advantage of tax-efficient investing. Begin using strategies like tax-deferred or tax-free accounts to minimize tax liabilities as your wealth grows.
To Learn More: Tax Forecasting vs. Tax Planning – Set 2 Retire
4. In your 50s: Transition to retirement planning
The primary focus in your fifties is to shift toward income generation and ensure that your savings can sustain you through retirement.
Key goals:
- Plan for retirement. Evaluate how much you need to retire comfortably. Assess how much income your investments will generate and whether that will meet your needs.
- Make catch-up contributions. If you haven’t already, make the most of catch-up contributions to retirement accounts.
- Reduce debt. Pay off any remaining high-interest debt and start thinking about how to reduce or eliminate debt before retirement.
- Review estate plans. Ensure your will, trusts, healthcare directives and powers of attorney are up to date. Consider long-term care planning.
- Plan for healthcare. Start planning for healthcare costs in retirement, which can be significant, even with Medicare
To Learn More: Do You Have a Plan for Your Financial Future… Or Just a Portfolio?
5. In your 60s: Nearing retirement
At this point your primary focus should be on finalizing your retirement strategies and securing income streams.
Key goals:
5. In your 60s: Nearing retirement
At this point your primary focus should be on finalizing your retirement strategies and securing income streams.
Key goals:
- Start drawing retirement income. Understand your options for Social Security, pensions and withdrawing from retirement accounts.
- Optimize Social Security. Consider the best time to claim Social Security benefits to maximize your lifetime payout.
- Secure long-term care. Review long-term care insurance options and make sure your healthcare planning is aligned with your needs.
- Reduce or eliminate debt. Ideally you’ll enter retirement with little or no debt.
- Review your retirement budget. Make sure your retirement spending aligns with your projected income.
To Learn More: Beyond the Balance Sheet: Retirement’s Unsuspected Challenges – Set 2 Retire
6. In your 70s and beyond: Maintaining and distributing wealth
At this point you are in retirement and your primary focus is on ensuring sustainable income throughout retirement, and managing legacy planning.
Key goals:
- Manage withdrawals. Withdraw funds from retirement accounts in a tax-efficient manner, considering required minimum distributions (RMDs) from IRAs and 401(k)s.
- Finalize your estate and legacy plan. Ensure your wealth is passed down according to your wishes, and take steps to minimize estate taxes.
- Adjust your spending. Monitor your spending and adjust it as needed to ensure your wealth lasts.
- Plan for charitable giving. If you’re inclined, explore ways to leave a legacy through charitable giving that aligns with your values.
To Learn More: 7 Financial Risks Women Face That Many Men Do Not – Set 2 Retire
Regardless of where you are currently at in life, as your financial planner I can help you get and stay on track for a secure retirement. Schedule a Call and Let’s Talk