While staying healthy may not always be easy, at least there’s a checklist of steps you can take to skew the odds in your favor. Your doctor — not to mention, any number of reputable health sites — can tell you exactly what to do, and when to do it, to keep yourself in good shape.
But what about your finances? There are different avenues, after all, that you can take to build wealth; and your goals may be different than your neighbor’s. The good news: There are also guidelines for every stage of your life that will help you stay on track to meet your financial goals — no matter what they are. “Just as there are physical health concerns that are unique to different stages of life, so too are there unique financial health concerns that are unique to different stages of life,” says Joel Ohman, a certified financial planner and founder of InsuranceProviders.com. “It can pay to be prepared.”
Keep reading for a decade-by-decade guide.In Your Twenties
Here’s how to stay out of financial trouble and start building wealth in your twenties:
- Start investing in your financial future. “Even if it's just a few hundred dollars per year contributed to your IRA, start somewhere, but start now,” says Bo Lu, principal at FutureAdvisor, an investment advisory firm based in San Francisco. “Keeping savings in cash is a mistake, as inflation is the biggest risk to portfolios over the several decades you'll have it before you retire.”
- Pay off student loans. If you have student loans, work hard to pay them off as soon as you can, says Susan Fulton, founder of FBB Capital Partners in Bethesda, Md. The sooner you pay off student loans, the sooner you can begin building for the future.
- Avoid building credit card debt. The career-launching years are exciting, often with more cash than you had as a student and few commitments like house payments and children. It can be easy to get caught up in the lifestyle of immediate gratification with clothing, accessories, trips and happy hours. Avoid the temptation to use credit and develop a habit of living within your means; it will serve you well.
- Start taking advantage of tax-sheltered retirement accounts. IRAs and 401(k) plans are designed to “encourage people to save for their future by sheltering your assets in those accounts from taxes,” Lu says. “This tax-free growth compounds incredibly over the decades you will have until retirement, so start now.” Make sure you take full advantage of any employer 401(k) match programs — that’s free money!
For many women, the thirties is the decade of settling down — possibly buying a house and starting a family. Here’s a checklist to make sure you stay on track financially:
- Check that your retirement plan contributions match your goals. Not sure you’re saving enough? Our resident financial advisor shares guidelines for saving for retirement and information on contribution limits for tax-advantaged retirement accounts.
- Start saving for children’s education. If you have children, consider opening a tax advantaged investment account such as a 529 plan or a Coverdell to save for their future education expenses, Lu says. (Just make sure to contribute to your retirement account too.)
- Ensure diversification. If you started saving during your twenties, now is the time to “make sure you have a portfolio designed for long-term growth,” Lu says. “This means heavy on stocks and relatively light on bonds. Also, remember to include funds that give you exposure to companies in other nations.”
- Consider purchasing a home. If you plan to stay in your city long term, buying a home can be a viable investment. If you decide that purchasing property is right for you, “see if your city has a first-time homeowner tax credit,” Fulton says. “Begin setting aside savings for the down payment.”
While women can make career changes at any age, by the time they get into their forties, “most have found their niche,” Ohman says. That often translates into higher earnings and more money to invest. Here’s how to get the most from it:
- Spend and save wisely. “Making smart spending and saving choices turn into habits is key at this stage of life, since it can be easy to increase spending to correspond with increased earnings,” Ohman says.
- Increase retirement plan contributions. Lu recommends “paying your future self first” by increasing automatic deductions to your company 401(k) plan and direct deposits from your checking account to your IRA.”
- Roll over old 401(k) accounts. If you have changed jobs over the years, roll over your former retirement accounts into a brokerage account or your current retirement account. “In most cases you will save on fees and have a broader set of investment options,” Lu says. “Make sure to do a direct rollover, and it will be tax free.”
- Talk to your parents. During your forties, Fulton recommends sitting down with your parents to discuss their retirement plans. “If they do not have plans or resources, you may need to help,” she says. If so, that fact will influence your spending and saving during these years.
During your fifties, it’s important to start planning for when and if you want to retire. “The five years before you retire and the five years after you retire are the 10 most important years of your entire financial life,” says Ken Moraif, CFP, senior advisor at Money Matters in Plano, Texas. “Many studies have shown that if you take large losses during that 10-year period, you may not be able to retire or it could un-retire you.”
Keep these things in mind to stay on track:
- Rebalance your portfolio regularly. As you get closer to retirement, make sure that your investment portfolio “smoothly transitions from one of aggressive growth to one of preserving wealth,” Lu says. “This is done by shifting assets to lower risk investments such as bonds.”
- Plan aggressively for retirement. When it comes to planning for retirement, “time is more important than money,” Fulton says. “If you don't have at least 20 years to accumulate the desired goal, you will likely need to work all your life.” Work with a financial planner to calculate how much you will need to live on during retirement. Fulton recommends building your IRA and 401(k) to the point where you can live on 4 percent of their annual value.
- Fund your retirement before your children’s education. “Resist the urge to prioritize paying for a child's education over saving for retirement,” Ohman says. “There are student loans, grants, scholarships, and other options for the child's education; there are not those additional options when it comes to having enough money in retirement.”
By the time you enter your sixties, your investment strategy “should be about protecting what you have, so that the lifestyle you’ve secured over your career can be maintained in retirement,” Lu says. To do that, follow these steps:
- Continue to rebalance your portfolio regularly. “Even though most of your assets will be in bonds by now, stocks will tend to perform better, so over time they will creep back up to take more and more room in your portfolio, increasing its risk,” Lu says. “Rebalancing controls risk for the whole portfolio.”
- Stay tax-conscious. If you retire during your sixties, draw cash out of your investments in a tax-efficient and judicious way. Lu recommends selling off assets periodically to avoid momentary peaks and valleys in the market, while maintaining the overall balance of your portfolio.
- Plan carefully for Social Security. Research your options and choose your Social Security distribution to match your lifestyle and income needs, Lu says.
- Consider a second act. Growing numbers of people are not retiring in the traditional sense, but are continuing to work part time as consultants or launching entirely new ventures. For many people, the sixties are no longer about “retirement in the traditional sense,” but instead about making “a transition from a lifelong career to some other pursuit that one has kept in the back of their minds for quite some time,” Ohman says. “Each option requires adequate retirement savings,” although a second act can continue to contribute income to prolong your savings.
When you reach your seventies, it’s time to “leave for vacation,” Fulton says. While it’s likely you no longer want to be spending time managing money, there are a few things to keep in mind in your seventies and beyond:
- Continue watching your portfolio. With the help of a financial advisor, keep a close watch on your portfolio, managing risk as needed to ensure that you will not run out of money.
- Enjoy yourself. If you’ve spent your life working and saving, your seventies and beyond are the years you were saving up for. Savor this time. You earned it!
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