National Retirement Security Week (October 21 - 27) was probably not marked on your calendar. But it’s a very important reminder that thinking about and making forays into retirement planning should never be left until the last minute.
You’re never too young or too old to make wise decisions about how to manage your money in order to create or protect a tidy nest egg for your senior years. Each decade of your life calls for different strategies, though, and that’s what we’ve outline for you below.
- In Your 20s. Few young people give much thought to saving for retirement. It’s hard enough just figuring out how to make ends meet, let alone contemplating how you’ll do it 40 years from now. But that doesn’t change the fact that the younger you start saving and investing, the better off you’ll be. Compounding interest is the BFF of young investors. Youth is also the safest time to be more aggressive in your stock options, since you have more time to weather the ups and downs of the market.
Your goal: Invest 10 percent of your income with an aim to accumulate the equivalent of one year’s salary.
- In Your 30s. This is the decade when folks typically begin to earn significantly more money. It’s also a time when people tend to spend significantly more money—for example, buying a home or your first brand-new car. Don’t let all that extra income go toward material comforts alone, though. Your 30s is a time to seriously increase the percentage of your income going into retirement investments. If you weren’t able to set aside 10 percent in your 20s, make up for that now.
Your goal: Invest 15 percent of your income with an aim to accumulate the equivalent of two year’s salary.
- In Your 40s. It might feel as though retirement is inching closer, but it’s still at least a couple decades away. So avoid the temptation to become overly conservative in your investments at this time. You can still absorb some risk. Double check that you have not abandoned any 401(K) funds that were invested with previous jobs. That money belongs to you and should be rolled over into an IRA. Pay down credit card debt. And remember this: You can borrow for college, but you cannot borrow for old age. Don’t neglect your retirement in favor of your children’s college education.
Your goal: By the time you are 45, your retirement fund should amount to the equivalent of four year’s salary.
- In Your 50s. Now is the time to start thinking seriously about what your retirement is actually going to look like. Will you downsize? Will you continue to work beyond retirement age? What kind of medical expenses can you reasonably expect to have? Will you want to travel, or stay home and finally spend as much time in the garden or on the water as you want? Make a budget and see if what you have saved will accommodate what you want. Good news! Anyone 50 or older can save up to $24,500 in a 401(k) and up to $6,500 in an IRA.
Your goal: By age 55, you want to have saved seven times your earnings.
- In Your 60s. One of the biggest financial decisions you make in the decade of your 60s is when to start drawing Social Security. Anyone can claim Social Security benefits at age 62, but to receive the highest financial payout, you have to wait until your full retirement age, which varies depending on when you were born. You might think your saving years are over—now it’s all about spending what you’ve saved, right? Maybe. But if your health is good and you still find satisfaction in your work, there’s no rules that say you can’t go right on working and saving. When you do start to draw funds from your retirement accounts, you may want to investigate living in a state that is tax friendly to seniors.
Your goal: By age 60, you want to be debt free and have saved the equivalent of eight times your annual income.