The prospect of keeping on top of our financial lives can be an intimidating thought. But breaking it down into 10-year increments can help us focus our efforts during different life stages. Here are some guidelines for financial actions we can take in every decade.
In your 20s
As you are finishing your education and getting settled into a career, it is the optimal time to learn about and understand your employee benefits. Take advantage of workplace retirement plans. Contribute enough to your retirement plan to get the employer match, if one is offered. That’s free money! If a plan is not offered, take it upon yourself to start a retirement savings account on your own through a Roth IRA or Traditional IRA. Take advantage of any other employer benefits, such as health care coverage, term life insurance, or dental or vision coverage. Begin working to pay off debt, including student loans and credit card debt, and begin creating an emergency fund of enough cash to pay for 3-6 months of expenses.
In your 30s
You may find your debt load increasing as you buy a home or welcome a child into your life. Make sure it stays under control. Your salary has likely increased by now, so this is a great time to begin ramping up your retirement savings. Try to add 1% or more per year to your savings rate for retirement, with a goal of getting your retirement savings rate to 10-20% of your annual earnings. If you have children and college is a goal, evaluate the various options for savings. Make sure you protect your family and investments with adequate life insurance.
In your 40s
If you can, increase retirement savings to the maximum allowable amount. If you have children, talk with them about what they can reasonably expect from you in terms of college support. If you have to make a choice between funding your retirement or helping children with college expenses, choose your retirement. Your children have their whole lifetime to repay college loans, while you have limited time to prepare for your retirement.
In your 50s
Increase your retirement savings by the catchup amount. For IRAs, the catchup amount for individuals who are 50 or older is an additional $1,000/year. For workplace retirement plans such as a 401(k) or 403(b), the catchup amount is $6,000 per year. If you are considering a long-term care policy, the best rates are available before your mid-fifties.
In your 60s
Now is when you get to make final plans for retirement and decide whether to claim your Social Security benefits at 62, your full retirement age (somewhere between 66 and 67 for anyone born after 1943), or 70 (when you receive the largest payout from the Social Security system). You’ll also decide what retirement looks like for you – whether you will keep working full time, begin part-time work, or stop working altogether. Remember to apply for Medicare 3 months before you reach age 65.
In your 70s
Age 70 is the time to begin your Social Security benefits if you haven’t already. Once you reach the age of 70, your benefit will not get larger, so there’s no reason not to start taking the checks. In addition, you must begin your required minimum distributions (RMDs) from your qualified accounts, such as IRAs, in the year you turn 70 1/2 years of age. Make sure your estate planning is in place and that you have put in place any plans needed to cement your legacy.
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.