We 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.
Your
20s
The 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 early.
Your
30s
Hopefully, 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.
If 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.
If 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.
Your
40s
You’re
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.
Believe
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
and investing.
Your
50s
You’re 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.
Take
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.
If
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
need to.
Your
60s
This 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.
One 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.
Slow
and Steady Wins the Race
If 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.
Source:
Creating — and
sticking to — a household budget is the cornerstone of a sound personal financial
plan. Here’s how to make one in 10 simple steps.
1. Pick a system. There’s no shortage of budgeting apps and online tools available.
You can also use a basic electronic spreadsheet or even pen and paper, if you prefer.
But whatever your approach, select a convenient and flexible system to capture and
categorize your income and expenses over time.
2. Track current
spending. Keep track of everything you buy for a month to have a
realistic picture of your spending before you start. It can be surprising
how many purchases occur under your radar — like that occasional latte, magazine
or fast-food lunch.
3. Log Your Income. Record income from your job and any other sources, like a side hustle
building websites or selling handmade jewelry on Etsy. Don’t forget to include investment
or retirement income as well.
4. Record Fixed
Expenses. These are costs that remain relatively
stable over time — things like your mortgage, insurance premiums or car payment.
5. Project Variable
Expenses. These change from month to month.
They might include things like gas, takeout dinners and clothing purchases. Credit
card payments tend to also fall into this category. Look at your average over the
two previous months for a ballpark, but always err on the high side when it comes
to budgeting for them.
6. Include Occasional
Expenses. Some expenses only come up from
time to time. They can be predictable (like your summer vacation) or unpredictable
(like a car repair). Either way, it’s important to budget for expected and
unexpected occasional expenses. To do this, take the total estimated cost, divide
by 12, and include that amount into your monthly budget.
7. Emergency Fund
Savings. Aim to set aside at least 3-6 months’
worth of expenses in a highly-liquid savings vehicle like an FDIC-insured bank account
(some advisors suggest 12 months depending on whether you own a home, are
married or have children). Clearly, this can take time to build up, so if you
don’t yet have enough saved for a rainy day, budget regular contributions to an
emergency fund.
8. Retirement Savings. Sit down with your financial advisor, who can help you determine
how much you’ll need to save in your 401(k) and other retirement accounts each month
to stay on track to achieve your retirement goals. It’s important to “pay yourself
first” when it comes to funding your future — and your budget should reflect this
important priority.
9. Plan for Windfalls. Decide ahead of time what you’ll do with an increase in pay, tax
refund, gift, bonus or other found money. Having a plan reduces the likelihood of
an impulse buy. Consider using most of it to bolster your retirement fund or pay
down debt.
10. Monitor and
Periodically Re-evaluate. It’s important to reexamine your
budget regularly and whenever your financial circumstances change. Depending on
your situation, that could be quarterly, semi-annually or annually.
Don’t be hard on
yourself if it’s difficult to stick to your budget each and every month. You may
need to make some adjustments from time to time. The most important thing is to
keep trying to meet your spending and saving targets. If you need help determining
a realistic budget for your situation, make an appointment with a financial advisor
who can assist you.
Sticking to a budget is hard enough
normally — and things are anything but normal right now. Unfortunately, this is
one more area of our lives that’s a lot more complicated since the pandemic
began. Just as many folks are rethinking how they work and grocery shop, it’s a
good idea to look at your household budget and consider whether some
adjustments are in order.
Budgeting is about planning ahead.
But before you do that, review changes in your spending habits since the
COVID-19 crisis began. While it may feel like you’re saving money by eating out
less or staying home, there may be other areas where you are, in fact, spending
more than you did before the pandemic. These might include groceries, utilities
and even household repairs, as appliances and other systems in your home deal
with increased demand.
Once you have a good sense of the increases
and decreases in your spending, adjust your budget accordingly. Then, consider
the following:
1. Bolster your emergency fund.
Whether or not you’ve had to tap your emergency fund, consider adding to your
safety cushion. With the future still uncertain, see if you can squirrel away
an extra $50 a month to put toward repairs or other unexpected expenses. Adding
to your Flexible Spending Account (FSA) or Health Savings Account (HSA) can
also help cover any unanticipated medical costs.
2. Review discretionary
spending. Some budget items are necessary expenses, such as food, housing
and utilities, while others are optional. Review your discretionary spending,
such as multiple streaming services and nonessential clothing. Consider cutting
back on these temporarily to liberate additional money for building your emergency
fund or paying down debt.
3. Seek out savings on essential
spending. Curb grocery bills by using paper or online coupons. Buy in bulk
and look for lower-cost meal options that include pasta, beans and in-season vegetables.
Cut back or eliminate alcohol purchases. Getting creative with leftovers can
also help. Look for new budget-friendly recipes to add to your meal-planning
repertoire. Many auto insurance carriers are offering discounted rates as well,
so check to see if yours is one of them. You can lower monthly insurance
payments by increasing your deductible, but only consider this strategy if you
can afford the higher out-of-pocket expense.
4. Negotiate with creditors and
service providers. If your budget is straining, speak to your lenders to
see if they can lower your monthly payment or interest rate. They may even
allow a forbearance of payments altogether. If you have a mortgage, investigate
whether refinancing that loan makes sense for you. Call credit card companies
and ask for a lower interest rate or consider a balance transfer to a card with
a more favorable fee structure.
5. Review your retirement plan.
Try to avoid dipping into your 401(k) as this could potentially set you back
years on your retirement timeline — as can lowering or stopping contributions.
It’s particularly important to contribute the minimum required to receive any
company-match funds if possible.
Many American families are feeling
the crunch right now. You’re not alone. Seek out guidance from those who can
help. Setting an appointment with your financial advisor is a great place to
start during this challenging time. If you’re under a great deal of financial
stress, talk to supportive friends and family. And, if necessary, obtain
professional help from your Employee Assistance Program (EAP) or a qualified
counselor through your health insurance plan.
Having a financial advisor is like having
a tennis or baseball coach. While you want them to track your performance throughout
the year during routine practice, there are also key moments during a big game when
you look to them for important advice. So, when exactly should you touch base with
your advisor?
1. When you land your first job.
This is an excellent time to schedule a meeting with an adviser about setting up
a monthly budget and starting to save for retirement. If your employer offers a
401(k) plan, a financial advisor can help you decide how much to contribute and
how to allocate your contributions.
2. When you leave or change jobs.
If you’re taking a hit in income, your advisor can give you strategies about how
to adjust your finances until you find that next job. And they can walk you through
options regarding your 401(k) plan from your previous employer — such as rolling
those funds into an IRA or transferring them into a 401(k) through your new job.
3. When you get married. Getting
married can change your personal finances significantly. Are you going to merge
your funds or keep them separate? If you are now going to be a dual–income family,
what will you do with that additional income? What about life insurance needs?
4. When buying or selling a home.
An advisor can help you figure out exactly how much house you can afford and, along
with a tax professional, plan for any tax consequences. Finally, he or she can
help you adjust your budget to accommodate all of your home mortgage and maintenance
needs as well as continue to invest toward retirement.
5. When you have children. Children
are bundles of joy that can also cost your bundle. Getting professional advice about
how to manage child-rearing expenses can be extremely beneficial. An advisor can
also help you set up a dedicated college fund to plan for your child’s educational
needs down the road.
6. When you receive an unexpected
windfall. Whether it’s a large bonus or an inheritance, you want to plan for
any unanticipated funds. There can be tax obligations, and you need to make decisions
about how to spend or invest that money.
7. When you’re about to retire.
The transition from your income-generating years to retirement can be tricky to
navigate. Working with a financial planner all along will help smooth out the transition.
However, there will still be adjustments to how you manage your money, and an advisor
can help you during this critical time.
8. Every 6 to 12 months if nothing
major has changed. It’s important to touch base regularly with your advisor,
even if your circumstances remain more or less the same. Periodically review your
progress toward your retirement and other financial goals, such as debt reduction.
A good financial advisor can help you train and prepare, recover from injury, and come up with a game-winning strategy to get you over the goal line to your retirement years.
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