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Retirement Planning in Your 20s, 30s, 40s, and 50s
By JLP | July 20, 2007
I picked up a copy of Business Week’s Annual Retirement Guide. I liked their suggestions of what people should be concentrating on at various stages in life (along with my commentary):
Tighten up on spending, ratchet up savings. This is probably the biggest obstacle to those in their 20s. Getting started in life is expensive. However, if you can put off buying anything that isn’t totally necessary, and manage to save some money, you will set yourself up nicely for later on down the road. As soon as you graduate from college, instead of buying that nice new car, buy a cheaper used car first. Instead of buying or renting that really nice apartment, buy or rent a cheaper apartment.
Put savings on autopilot. I LOVE this idea and have started utilizing it for my own finances. All of our monthly bills and money allotted for savings and investment are on automatic. Heck, out tithe is even on automatic!
Live beneath your means. This goes hand-in-hand with the first suggestion. If you can always manage to live below your means, you will build wealth.
Start an “escape fund.” This is a pretty cool suggestion. They recommend that this be after tax money invested for the sole purpose of helping you retire early. I still think it would be wise to stick this money in a Roth IRA since you can take out your contributions (after 5 years) with no taxes or penalties.
Revel in the Roth. Yep. The Roth IRA is an amazing tool especially for younger generations since they have time on their sides and the potential to build up sizeable assets which can then be used tax-free upon retirement (as long as you are at least 59 1/2 and have had the Roth at least 5 years).
Watch the fees. For the most part when it comes to investing, you get what you don’t pay for. Therefore, it makes sense to keep costs low. To do that, you need to look at the fees you are paying on your investment accounts.
Concentrate on your career. Pretty straight-forward advice.
If you’re going to have a family, there’s no time like the present. We did this in our 20s. We liked the idea of still being young by the time the last kid leaves the nest. We messed up that idea when we had our third child while in our mid-30s (I was nearly 35 and my wife was nearly 33). So much for being young when the kids leave the roost.
Set goals. This should also be a priority while you are in your 20s. Anyway, set some clear, concise, stretchable (but reachable) goals for yourself. Figure out how much those goals are going to cost and make a plan to bring them to fruition.
Stash your cash. Take advantage of your 401(k) and other tax-deferred or tax-free accounts. Also continue to fund your escape fund.
Insurance RX. You 30s is a great time to beef up your insurance. This is something I did earlier this year. It might even be time to look into an umbrella policy. They’re cheap and they give you a lot of protection.
Feed your escape fund. Over the years, the amount you are putting into your retirement accounts should be growing.
Monitor your investments. Again, this is something you should be doing all along. I monitor our investments quite often. However, you may want to do it once a year. Be sure you rebalance every one to two years.
Refine your retirement plan. Now is a great time to start thinking about withdrawal rates and how much income you can realistically count on during retirement. If it’s not enough, you need to save more.
Vacate your vacation home. Unless you plan on retiring to your vacation home now is a great time to sell it and use the proceeds to purchase your retirement home, which you can then rent out until you retire. We don’t own a vacation home and probably never will.
Get to work. If your goal is to retire early and start a business or second career, now is a great time to get started. The author of the article suggests setting up a home office.
Review your real estate. Are you gonna stay or are you gonna go? You need to figure out whether or not you are going to sell your house and relocate or if you are going to stay put. If you decide to sell, make sure you factor in the cost of improvements in order to help your house sell.
Stay with stocks. You are facing a retirement that could be 30 - 40 years in length. That makes you a long-term investor, which means you should be a stock investor.
Do a benefits check. Find out what retirement benefits your company has and figure out how much they are going to cost.
Cut the cord. Quit supporting your kids!
Devise a tax strategy. Hire a good tax advisor and learn the best ways to take money out of your retirement accounts. Do it the wrong way and it could cost you a lot of money and cause you a lot of headaches.
Topics: Retirement Planning |