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Retirement Planning by the Decade

No matter how old you are, it’s never too early to start planning for retirement. Pretty much as soon as you start working and earning money, you should be thinking about how you’re going to be saving for when you retire.

Typically speaking, however, most people don’t really begin planning until they are well into their 30’s, 40’s or 50’s. Life tends to get in the way, and retirement can seem like it’s so far away. Still, you need to include it into your plans, lest you get to 65 and not have anywhere near as much money as you need to live the life you’ve been dreaming of.

Sometimes, planning for retirement can feel like this long list of things to consider and get done. It can be difficult to know how (or when) to start. So, we thought it might be helpful to organize some tips by decade. No matter where you fit on this list, there are things you can be doing to help yourself for retirement. Even if you haven’t started yet, it’s never too late to make adjustments and give yourself a running start.

Retirement Planning in Your 20s

We know – it’s hard to think about retiring when you’re still fresh to the workforce. However, while you may not be concerned about financial planning in your early 20s, this is the perfect decade to get the ball rolling.

When you think about it, starting a retirement fund or account now will pay off massively down the road. As your money builds and grows for 40+ years, it will become a substantial nest egg. Even if you can only contribute a little bit of each paycheck or a small percentage each month, it will go a long way.

Although everyone is different and has unique situations, here are some things that you’ll be confronted with when it comes to financial planning and retirement savings.

College Loans

It’s no secret that college is only getting more and more expensive. Thus, taking out massive student loans is pretty much par for the course for many young people. Unfortunately, these loans will hang over your head for many years, which means that you have to develop a plan to pay them off as soon as possible.

The biggest danger is letting your loans get out of hand. Also, you don’t want to default on them. While you can usually apply for deferrals and extensions, it’s a much better idea to pay them off quickly so that you aren’t still dealing with them when you’re in your 40s and 50s.

One thing to think about is the fact that paying off college loans is similar to having a mortgage. Thus, if you can budget correctly and get them settled in a reasonable amount of time, it will help you manage your money when you do have a mortgage.

Budgeting – Learning How to Spend and Save

When you’re still new to the workforce, it’s easy to get carried away with having money. Not only that, but chances are that you’re starting to rack up bills that will eat away your paycheck faster than you can deposit it.

Thus, budgeting is one of the most valuable skills you can learn right now. While you’re probably not going to master it yet, you need to make it a priority so that you can build a solid foundation of money management.

Fortunately, there are tons of budgeting apps and tools out there to help you. We suggest finding one that works for you and using it as a basis for your spending habits. A good mentality to get into right now is “can I afford this?”

Overall, what you want to avoid at all costs is the idea of “buy now and pay later.” Accruing credit card debt can bite you later on, so try not to let credit become a significant part of your financial planning.

Renting vs. Buying

For most twenty-somethings, now is when you’re moving out of the house and finding a place of your own. In the vast majority of cases, you’ll wind up renting an apartment. There’s nothing wrong with that, but you want to consider the benefits of buying a home versus renting for the long-term.

Here is a quick breakdown to help you.

Renting Pros and Cons

Cheaper initially (smaller down payment)
No maintenance or upkeep costs (i.e., repairing appliances)
More flexibility on where you live
Rent can be as much as a mortgage in some cases
You’re not building equity in a property

Owning Pros and Cons

You are creating long-term equity in your home
Total control over your living arrangements
Ability to use the property to make money (i.e., subletting or renting)
More expensive upfront costs
Can be hard to get a loan

Overall, you probably won’t be able to afford to buy a home in your 20s, but it’s still vital to understand the benefits and drawbacks now so that you can be prepared when the time does come. Start looking at home prices in the area you want to live and see what kind of down payment or loan options you’ll have to get. This way, when you are ready to pull the trigger, you already know what to do.

Getting a Good Job

Typically, people in their 20s are mostly working jobs that won’t turn into a career. Maybe you’re working in the fast food or retail industries, but the fact is that you’re not planning on staying in that position for too long.

While you’re still young, you should be thinking about the type of career you want to have. Although it’s not necessarily easy to get started in your career, you can begin to figure out what kind of moves you should be making to get to where you want to go.

Hopefully, your college education will help prepare you for this, but even if it didn’t, you should create a roadmap that will help you reach your goal.

Also, when moving into a better job, you’ll want to understand the various benefits you may receive. At first, you may want to keep more of your paycheck, but paying into things like health insurance and retirement benefits will be a much better option.

Now is the time to learn about 401(k) plans and other retirement options that may be offered by your employer. If you can get a job that lets you contribute toward retirement, take advantage as soon as possible.

Taxes

No one likes paying taxes, but it’s a natural part of living in modern society. Thus, it would help if you familiarized yourself with taxes in all their forms. If you haven’t been filing your own returns, then now is the perfect time to make an appointment with your tax professional to start further understanding your taxes. This will help you figure out things like deductions and other tax benefits. Also, you can look into investment options later on that will offer juicy tax incentives that will help out your retirement funds.

Marriage

Some people are going to get married in their 20s, and that can impact your retirement planning significantly. First off, you will be able to file joint taxes and get a variety of benefits from the government. Secondly, you will be able to pool your credit together for major purchases like a new home. Finally, you can have joint accounts where both of you can contribute towards things like retirement, as well as funds for potential kids down the road (i.e., paying for college).

Retirement Planning in Your 30s

Now that you’ve been working a while, you’re probably thinking a little more about retirement. Hopefully, you used your 20s to learn a few things about retirement funds and tax benefits, which means that you’re better prepared for making the right decisions about long-term financial planning.

Still, this decade has a variety of situations that can impact your ability to save for retirement. Let’s break them down.

Starting a Family

If you got married in your 20s, now is the time when kids are probably on their way (if they’re not here already). Nothing can prepare you for how much a child will change your life, but you should still try to get ready as much as possible.

When you realize how expensive raising a baby can be, it will seem like retirement will have to take a back seat. However, don’t stop contributing now – just lower it if necessary. Even if you’re only putting $100 a month into a retirement account, that’s better than nothing.

Fortunately, there are tons of parenting blogs out there that can help you stick to a budget and save money on various child-related items. Budgeting will only become more valuable right now, so if you haven’t mastered it yet, now is the time to buckle down and get it right.

Buying a House

Getting married and having a child can change your perspective in a few different ways. One way is that you’ll probably need to upgrade your living conditions. Although plenty of people raise children in apartments, buying a house is usually the better option.

Now is when your research into home-buying will come in handy. You’ll want to weigh the various loan options, including the length of the mortgage and the interest rates. As new homebuyers, you may be able to get a decent loan, but that will depend on your credit score.

Nonetheless, buying a home is always a smart move for long-term financial planning. Even if it seems expensive and arduous right now, remember that you’re building equity that can pay off substantially when you retire.

Life Insurance

Most people only start thinking about life insurance when they get older (usually in their late 40s or early 50s). However, now is an excellent time to get a life insurance plan, especially if you have children.

You want to make sure that your kids are provided for if something were to happen, so getting a policy now will make a lot of sense. However, you will want to weigh your options, especially because some life insurance plans can help with retirement.

When it comes to life insurance, you’ll want to research-

Term vs. Whole Life Insurance – term plans only cover you for a specific period (i.e., 20 years). Whole life insurance is permanent.
Life Insurance Benefits – typically, you will pick a benefit amount to be paid upon your death. However, some plans allow you to put money into the account and pass it on to your children.

Overall, even if you don’t buy a policy right now, it’s still a good idea to find out what options are out there and which one will benefit you and your family the most.

Changing Jobs

Realistically speaking, you probably weren’t working in your desired career in your 20s. If you were, then you should be in a much better position once you reach your mid-30s. Nonetheless, if you’re still trying to get into a new career, don’t despair if it’s not happening as soon as you like.

When changing jobs, you’ll want to pay closer attention to any benefits packages you get with your new employer. Also, if you were contributing to a retirement plan before, make sure that you can roll it over and keep the money. Typically, 401(k) plans can roll over easily, but other employer-sponsored accounts may be trickier to keep when changing jobs.

Another thing to consider is that you don’t always have to move up. If you’re switching careers, you may have to take a pay cut because you’re starting at the bottom. This may put some strain on your relationship and budget, but if it’s going to pay off later on, it may be worth it.

Retirement Planning in Your 40s

For most forty-somethings, they are well into establishing a family, meaning that you have to worry about kids, a mortgage, and other expenses that will come up (health issues, anyone?).

This decade is one of the most crucial when it comes to retirement planning because you’re getting closer to 65, meaning that you need to be sure that you’re on the right track. Correcting course in your 40s is better than waiting. You still have a couple of decades before you retire, so making changes now can pay off in the long term.

Here are some things to consider when thinking about retirement in your 40s.

Paying for College

Hopefully, by now your student loans are already paid off in full. If not, then it will be a little awkward when you start paying for your child’s college tuition. Depending on when you had your first child, this may be the decade when he or she moves out and goes to a university.

If you are paying for your child’s college, then that can impact your financial planning substantially. However, if you started saving for it when your baby was first born, then it hopefully won’t be as much of a burden.

Buying a Second Home

For many homebuyers, their first house is not their last. As you get older, it’s only natural to want to upgrade to something bigger and better. Ideally, you will have made money on your last property, meaning that the profits went towards savings and retirement (and college funds).

When buying a second home, you still want to make sure that you’re getting a decent loan with relatively low interest rates. The benefit now is that you’ve built up credit over the years, so you should be able to qualify for better loans. That being said, refinancing your home or getting a new mortgage now means that you’ll be paying for it in retirement as well.

Thus, when you think about your long-term financial plan, you’ll want to think about whether your mortgage payments will continue into retirement, and for how long. If you’ll have your second home paid off by 68, it will be much better than if you were still paying a mortgage at 75.

Divorce

While we hope that your marriage will stay strong throughout the years, the reality is that many people will get divorced. If that happens, the financial impact can be much more significant than you may realize.

Here are some things to think about when it comes to divorce and its effect on your financial plan.

Splitting Assets – any assets you got as a couple (i.e., your home) will either have to be divided, or you will have to figure out who gets it in the divorce.
Child Custody – if you have to pay child support, that can eat into your savings and budget.
Spousal Support – depending on who makes more money, you may have to pay spousal support. In some cases, these payments may be on top of any child support as well.
Wage Garnishment – in some situations, the court may garnish your wages to pay these things. If that happens, you have to plan accordingly.

Paying Off Debt

While you can’t remove your mortgage or college fund payments, now is the perfect time to eliminate any other debt you may have. Credit cards, medical bills, and other debts should be liquidated as soon as possible so that they don’t follow you into your golden years.

Even if it’s not feasible to pay off debt right now, you should be developing a repayment plan so that you’re debt-free as soon as possible (hopefully before you retire).

Retirement Planning in Your 50s

Now that retirement is only a few years away you need to make sure that you’re on the right path. If you didn’t start working with a financial planner in your 40s, you should do so in your 50s. A financial advisor can be your best lifeline when it comes to making sure that you have enough money for retirement.

Here are some other situations that may impact your ability to save.

Boomerang Kids

As rental prices increase and wages stagnate in a variety of industries, more and more children are moving back in with their parents. If this happens, you may have to help take care of your kids for longer than you initially expected.

Ideally, if your children do move back in with you, they’re old enough to have jobs so that they can pay their own bills. If not, then you should be pressuring them to earn enough to pay anything beyond rent so that you aren’t impacted adversely.

Still, when it comes to things like college loans and other debts, you may have to help your child manage their finances. Now is when you can put all of your experience and expertise to good use by teaching your kids the smart way to save for retirement and become debt-free. Make sure that they don’t make the same mistakes you did.

Taking Care of Aging Parents

On the flip side of things, your parents will likely be old enough to require assisted living care. Even if they have sufficient insurance or funds to pay for these things out of pocket, their deteriorating health can still impact you as well.

In worse-case scenarios, you may have to pay for their retirement living or have them move in with you. In either situation, it can be a substantial financial burden that can impact your ability to contribute toward retirement. This is another reason why a financial advisor is helpful.

Retirement Planning in Your 60s

If helping out your elderly parents didn’t inspire you enough, now is the time when you want to start thinking about things like long-term health care and insurance. Also, since this is the decade when you will retire, it’s imperative that you have all of your ducks in a row before the time comes.

Social Security

If you haven’t started looking into your social security eligibility and benefits now, you need to start immediately. You only have a few months to apply for social security, and if you miss the window, you can be hit with penalties.

Also, keep in mind that you can apply for these benefits if you decide to retire early or later. However, you have to make sure that you understand the process for your particular situation so that you don’t miss out on any benefits.

Late Retirement

Just because the legal retirement age is 65 doesn’t mean you have to stop working. In worst-case situations, you’ll have to keep earning money because you don’t have enough for retirement. Ideally, however, retiring later is a choice, not a necessity.

Long-Term Planning

One of the biggest challenges when it comes to retiring is that you don’t know how long you’ll be there. It could be a few years or a few decades, so you have to make sure that your money won’t run out before you do.

Now is when you should be talking to your financial advisor about any investments and retirement accounts you have. Discuss how much money you can be earning regularly, as well as which accounts should be liquidated or consolidated.

Other long-term planning options should be healthcare, including what to do if you need to move to an assisted living facility. Hopefully, if you had to help your parents through this process, you learned enough to know how to prepare for this eventuality.

Financial Planning in Your 70s +

No matter what, you should be retired by the time you reach 70. Thus, instead of planning for retirement, you need to make sure that your financial situation is sufficient enough to keep you going for the coming years.

Here’s what you should be thinking about during your golden years.

Your Financial Legacy

Do you still have debts hanging over your head? If so, can you pay them off in the next few years? Alternatively, do you have any money saved that can be passed to your children and grandchildren? What about assets like a house or investment accounts?

You should have already planned a will long before now, but you may wish to update it. You should take a look at your will regularly to make sure that it’s current and that you’re satisfied with how your assets will be divided once you’re gone.

When it comes to your legacy, it’s not always about cold, hard, cash. You can use your money to help out with college loans for your grandkids, or you can pass your house down to a family member who is looking to buy a home.

Funeral Expenses and Planning

When your time comes, you don’t want to be a burden to your family. If possible, start planning for your funeral and burial arrangements, and pay for them ahead of time if you can. This way, your children don’t have to worry about how they’re going to pay for your services.

Bottom Line – It’s Always a Good Time to Plan for Retirement

No matter what stage of life you’re in, or what situation you’re encountering, retirement and financial planning should always be at the forefront. Setbacks and hardships happen, but that doesn’t mean that your plans should get derailed in the process.

Opinions expressed in the article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

About Signature Wealth

Signature Wealth Strategies is a wealth management practice serving families like yours with a hands-on, concierge level service. Our advisors help you confidently plan your financial future through comprehensive strategies and custom solutions. We believe that each client’s story is as unique as his or her signature, and their financial strategy should be too.

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