“I do know that when I am 60, I should be attempting to achieve different personal goals than those which had priority at age 20.” (Warren Buffett)
Retirement planning is a process that evolves with each passing decade of your life. And understanding the nuances of that process will help ensure a solid financial future. In this article we’ll explore some specific steps to consider at each life phase.
In your 20s: The power of early contributions
Your most valuable resource in your 20s is time – because you’re able to leverage the power of compounding. By starting early, you give your assets more time to grow. Consider taking advantage of tax-advantaged accounts such as a Roth IRA or employer-sponsored 401(k). Using a diversified portfolio, this is certainly a time to invest with the focus on long-term growth.
In your 30s: Goal setting and risk taking
As you move into your 30s, this is a good opportunity to consider where you are, where you want to be, and what you might need to do in order to get there. Do you want to start a business? Buy a house? Start a family? If you need to make an adjustment (or take a risk) to get there, this might be a good time while you have plenty of life ahead, and plenty of time to course-correct if needed.
In your 40s: Peak earning years
Often, the peak earning years for individuals are between their 40s and 50s, after they've gotten more established in their careers. This is a great time to be more aggressive with savings, such as maxing out retirement accounts. While household expenses may also be at their peak for many families in this phase, beware of the temptation for "lifestyle creep," and take time to consider a balance of spending now versus saving for the long term.
More: What you need to know about the ever-evolving rules about inherited IRAs
In your 50s: Consider next steps and keep going
Like your 40s, this decade is often part of the peak earning years. So, keep going! This may also be an opportunity to take some time to reevaluate what you want retirement to look like. When do you want to retire? When would it be financially possible to retire? What do you want retirement to look like? No need to have the questions answered all at once, but it may be helpful to ask and discuss them with someone you trust.
In your 60s: Insurance and income
Several key retirement decisions come during this decade. Consider whether purchasing long-term care insurance makes sense (around age 60), when to draw Social Security (starting between age 62 and 70), and the assortment of Medicare options (at age 65).