How to secure your financial future throughout the decades
No matter what decade of life you find yourself in, one thing is for certain: You’re going to die.
Before that, you can always be planning for retirement, even in your 20s. Whether its investment management, tax planning or drawing up how you will hand your estate off to your loved ones, we asked financial experts to weigh in on what you can do today and tomorrow to be ready for life after work.
In your 20s
“Individuals in their 20s are often focused on staying out of, or getting out of, college and consumer debt,” said Brent Thomas, a wealth adviser at Buckingham Strategic Wealth, of the challenges of planning in your third decade. “However, as excess cash flow becomes available, beginning to use tools like a retirement savings plan or a 529 college savings plan can each offer a small tax benefit.”
There are other options for those looking to get an early start on a healthy financial future, according to Steve Branton, an adviser with Private Ocean Financial Planning.
“From a tax planning perspective, an immediate thing to do is maximizing retirement savings. This will reduce income taxation and get you started enjoying tax deferral on your retirement accounts,” Branton said. “Getting into the habit in your 20s of maximizing 401k contributions and doing an annual IRA contribution is best practice. Where possible, go with the Roth option.”
In your 30s
While still early in life, your 30s can be a time of significant family, career, and investment development.
“Always be aware of your investment time horizon,” said Justin Sloan, a wealth adviser at Buckingham Strategic Wealth. “The less time you have to make up for significant market corrections the less risk you should be taking. Generally, this translates to taking more risk while you are younger and phasing in fixed income as you get closer to retirement.”
In terms of estate planning, while it is never too soon, Sloan said keeping in touch with your planning professionals throughout the years is crucial.
“Laws change, the tax code changes, children get older, personal relationships shift and life happens!” he said. “You need to periodically revisit your planning in order to make sure your affairs truly are in order. Ask your attorney how often you should be revisiting your planning.”
In your 40s
Having and raising kids can impact your long term planning into your 40s.
“If you have children, setting up and investing money in 529s will allow tax-free distributions for college costs and some K-12 tuition or school costs,” said Branton of Private Ocean.
He added: “As your income increases and your portfolio gets larger in your taxable accounts, use muni bond funds for federal or double tax free income. Your employers may offer additional ways to save amounts of income for retirement or through deferred compensation.” Branton also said it is wise to get a good tax strategist as your situation becomes more complex to advise on when to defer or schedule deductions where possible, how to handle complex stock options, and other strategies.
In your 50s
Good financial planning can start to bear fruit in your 50s according to Thomas of Buckingham. “As an investor gets closer to retirement the percentage allocated to more conservative investments should be increased. “ he said. “A good financial plan can help navigate the math around how early an investor can start reducing the risk in the portfolio. For those that were able to save a bit more this could easily be happening in their early 50s, for those a little less fortunate this may be happening in their 60s.”
In your 60s
While previous generations have enjoyed retirement at or before 65, that may be changing according to Bruce Raabe, CEO of Relevant Wealth Advisors.
“The concept of retirement is changing as we live longer and longer. Most millennials will live to be over 100 years old. There is little chance they will accumulate enough wealth to retire at 65 like our parents and grandparents did.” Raabe said. “More likely, careers will morph from full time to part time and only then to a more typical retirement phase. It’s already happening – think Walmart Greeter.”
Overall, he added, “being prepared for life is important at any age. Having a will or living trust is essential for anyone who has accumulated wealth and has family, friends, or causes they wish those funds to pass to when they die.”