all know the fable about the tortoise and the hare. And just like in the fairy tale,
the tortoises of financial planning — the ones who slowly but steadily achieve —
usually come out on top. If you delay planning and saving for retirement, that could
leave you in the role of the frantic hare, racing to catch up before you reach the
finish line. To help you plan your trajectory on the retirement race course, here
are some mile markers for each decade of life.
best time to launch a financial plan is when you’re first establishing your career.
You’re out of school and starting to make your own money. And you probably don’t
have a lot to spare after you pay your bills. But before you buy that gorgeous handbag
or head off for that weekend in Vegas, establish the habit of paying yourself first
through a regular program of saving. Suppose you start out earning $40,000/year
at age 25 and contribute 10% of your salary to a 401(k) with an average annual rate
of return — and your employer matches your contributions 50% up to your first 6%.
If you maintain that level of contribution, you’ll have more than $2,000,000 in
your retirement account by age 65. But if you wait until 35 to start contributing,
you’ll net only about $825,000 — well less than half of what you’d have if you started
earlier. It’s hard to overstate the importance of starting retirement saving
this will be the time to build on the good habits you set in your 20s. By now, you’re
probably a few years into your career path. You might be married. You may even have
a mortgage and a kid or two running around. All of those things translate into higher
expenses. Even with increases in income, you may still struggle to keep saving at
the pace you want. But this is one battle you need to win. Avoid the temptation
of borrowing against your future to finance today.
your employer has a 401(k), hopefully, you’re already in it. But if enrolling somehow
fell off your radar, sign up right away — especially if your company offers a matching
contribution. If you don’t, you’re just leaving free money on the table. Don’t give
in to the urge to use credit indiscriminately. Mind those card balances and pay
them down while you continue to save for retirement and other financial goals.
you have children, this is a good time to consider setting up a tax-advantaged education
account for them. It doesn’t have to start large — even small amounts you let accumulate
can make a big difference by the time you’re ready for your little ones to head
off to college.
probably in a bigger house with a bigger mortgage, bigger kids and bigger expenses
— but also a bigger income and a bigger 401(k) balance. As you earn and invest more,
having a prudent tax strategy becomes even more important. You’re working hard to
bring home that paycheck and want to keep as much of it as possible. Your financial
advisor can help guide you toward more a more tax-efficient investment strategy
as you navigate this more complex — and rewarding — stage of life.
it or not — you’re now probably at about the halfway point between your first real
job and retirement. This is a good time to take stock of where you are. You should
have a better feel for your trajectory — where you’d like to end up and how much
it’ll cost when you get there. Sit down with your financial advisor and map out
the details of your retirement plan. How much longer will you work? Where will you
live after? What will you be doing? Will you continue to earn income in retirement?
This time is critical because, at 45, you still have two decades to keep saving
approaching your peak earning years. If you have outstanding debts (other than your
mortgage), make a plan to retire them before you do. The loan you took out for the
RV or boat? Pay it off. Likewise with the vacation place upstate. You’ll have so
much more financial freedom later on if you do.
a closer look at your healthcare options. Do you plan to rely on Medicare in retirement?
Bear in mind that Medicare has significant shortfalls when it comes to long-term
hospitalization and especially custodial care. Talk to your financial advisor about
your overall health and any need for long-term care insurance to provide for your
(or your partner’s) future needs.
you find your contributions to your 401(k) are coming up short of your goals — maybe
you’re borrowing against a retirement account during a downturn to pay for health
costs or college — the IRS allows people over 50 to make “catch-up” contributions
over and above annual limits. The amount can change from year to year, but take
advantage of the valuable opportunity to get your retirement back on track if you
is the payoff — the decade when you can hopefully throttle back a bit and begin
enjoying life more. If you’ve followed the path above, you should have savings to
help smooth out your transition to retirement.
of the most important decisions you’ll face is when to begin taking Social Security
benefits. You’ve probably paid into the Social Security fund for 30 or 40 years,
and you should make the most of the income you’ve earned. Monthly payments are higher
if you wait to start collecting, but there are other factors to consider. Talk to
your advisor about your circumstances and your needs in this critical area.
and Steady Wins the Race
you’re on the starting line of the race to retirement, remember that it’s more
of a marathon than a sprint. Sometimes it may not feel like you’re getting
where you want to be fast enough. While it can be tempting to look for
shortcuts and quick fixes along the way, trust that the steady pace, and
sustained effort of the tortoise can get you safely to the finish line and the
retirement you dream of.