Retirement Planning Through the Decades

Steps to take during each decade of your life:

In your 20s

Your 20s are a time for figuring out who you are and what you want to do with your life.  Most people enter the workforce for the first time in their 20s.  They move out of their parents houses and are on their own.  Retirement seems so far away.

Start investing in your company 401k if available.  If there’s an employer match, try to put in enough to get the full match.  That’s an instant return on your money, don’t give that up.   If you don’t have a company 401k, invest in a Roth or Regular IRA.  In 2015, you can save up to $5,500 per year in an IRA.

Getting into the habit of saving for retirement is very important, even if you only save $20 a paycheck.  If you have student loans and college debt you are trying to pay off, still try to put something away each paycheck towards retirement. 

If you start investing just $2,000 a year in a retirement fund at age 25, with an average annual return of 7%, your money will have grown to over $500,000 by the time you are 67.   If you wait until age 35 to start, you will have to save over $4,000 a year to have over $500,000 at age 67. 

In your 30s 

This is when things get real.  The things you were able to get away with in your 20s, are no longer excusable.  You might have an established family of your own, with a house, dog, kids, and all the expenses that goes along with that.  If you haven’t already started saving towards your retirement, now is the time.  Establish an emergency fund, and try to set aside any additional bonuses or raises directly into savings.

It’s also a good time to meet with a financial advisor and talk about your financial goals, both short and long term.  This can be difficult, thinking about what you want your life to look like in 30 years is tough to picture.  It’s a lot like asking a Kindergartner what they want to be when they grow up.  A good financial advisor can help guide you on the right path.

In your 40s

These are typically your top earning years.  You should be maximizing your retirement savings, and building a diversified portfolio.  Work with an advisor to properly diversify your investments.  If you haven’t already done so, diversify into pre-tax, after tax, and Roth retirement accounts.  This allows flexibility in retirement in case of any tax code changes.

In your 50s

Once you’ve reached your 50s, you should hopefully have a good amount of money set aside for retirement.  If not, it’s never too late to start saving, but you might have to make some sacrifices.  The IRS allows you to put additional money into your retirement savings in your 50s.  Take advantage of this catch up option, and you can save an additional $5,000 per year.

In your 60s

At this point, if you’re not already retired, you should have a pretty good idea of how you envision your retirement.  Work with your advisor to formulate a budget and build a portfolio that will meet your income needs.  Review any pension and social security options at this time.  There are often different options that can dramatically impact your retirement income.

In your 70s and beyond

If you’ve planned an invested all along, you should be in a position to have an enjoyable retirement.  Make sure you meet the IRS required minimum distributions from your pre-tax accounts each year.  If the distributions are more than you need to spend during that year, you can reinvest into a taxable account and save it for a rainy day.

Most importantly, make sure you have something to do in retirement.  We often see clients retire and become miserable because they are bored.  Find something to do with your time, whether it’s a hobby, volunteer work, or a part time job.  Enjoy your retirement!

All comments and suggestions are welcome.

Marisa A. Bradbury, CFA®, CFP®