Age Isn’t Just a Number: A Road to Reach Retirement Success

Successfully sailing off into the sunset starts now. Retirement planning is something you should be keeping up with throughout your life. If you can develop solid habits from the start and ensure you’re prioritizing retirement, you’ll be able to retire with a comfortable amount of money saved up. But life can get in the way, and there may be times you’re forced to put less toward your retirement — don’t let that discourage you, though. There are many ways you can make up for those times that you may be contributing less. Just keep in mind that it’s never too late or too early to start planning.

Your 20s

Retirement is probably the last thing you’re thinking about when you’re in your 20s. You’ve most likely just graduated and are getting started in a career. But don’t put off planning for retirement, even though it’s a ways away. This is the time to build solid financial habits that will stick with you through the years.

1. Clear your debts. This is a great time to focus on clearing your debts, particularly any that you’ve racked up from credit cards and student loans, says Money Super Market. Not only will this clear the path for you to put more toward your retirement, but it will also allow you to wipe the slate before mortgage payments and other major expenses pop up.

2. Understand compound interest. Learn the ins and outs of compound interest, and you’re more likely to be more motivated to save early. “For example, let’s assume you start putting $416 per month ($5,000 a year) in a tax-deferred retirement account that earns an average of 8 percent per year. Save for 40 years, and you’ll amass $1.3 million. Save for 35 years, and you’ll end up with around $861,500 in your retirement account. Save for just 30 years (which is how much time you’ll have if you wait until your 30s to begin saving), and you’ll have just $566,416 in savings at retirement,” writes U.S. News & World Report.

3. Start contributing to your 401(k). Try to contribute as much as you can to your 401(k) or IRA on a monthly basis, Manilla suggests. For those of you in your mid-20s, financial planners recommend saving 15 percent of your income annually for slow, steady growth. It can be tough to see that much deducted from your paycheck, but keep your eye on the ultimate prize: a comfortable retirement.

Your 30s

Your 20s have helped you establish a solid foundation. Your debt’s paid off, you’ve steadily saved what you can, and you have religiously contributed to your 401(k). Use this next decade to continue building your wealth. It’ll be easier in some aspects — hopefully you’ve received a raise or two — but it also presents some challenges, such as mortgage payments and a growing family. Keep retirement in sight, and make sure you’re following these steps.

1. Increase your 401(k) savings. Bankrate suggests making the maximum annual contributing limits into an employer-sponsored fund. As you continue to further your career, put raises into your retirement savings. Or, if you can’t afford to put away all of your pay increases, gradually increase your contributions over time.

“You’d be surprised the difference that even an incremental, 1-percent increase can make in the long run. For example, a 30-year-old who saves 6 percent of a $50,000 salary, or $3,000 a year, will have nearly $840,000 banked by the time she has to start taking funds from her 401(k) at age 70½. (This assumes an 8 percent annual growth rate.) If she boosted her yearly contribution by just $500 she’d have nearly $980,000. That’s a difference of nearly $140,000,” Bankrate reports.

2. Revise your portfolio. For someone in his or her 30s, an aggressive asset allocation model is the best way to go, according to Investopedia. Take a look at different available stocks, including income growth stocks, value stocks, and international stocks. If your savings are held in a plan that doesn’t allow for investments as stocks — this can be the case for 401(k) plans and mutual fund IRAs — you can opt to use replacement assets, such as target date and stock funds. When you’re looking at an aggressive allocation model, you should typically be including a smaller percentage of bonds and mutual funds, Investopedia said. 

3. Put your retirement first. When you’re in your 30s, you’re most likely starting a family or considering it. When it comes to deciding between putting money in your retirement account or your kids’ college account, put yourself first. Daily Finance writes that you shouldn’t consider putting a dime toward their education until you’ve got a plan in place to adequately fund your retirement. There will always be scholarships, loans, and grants for your child to take advantage of. There won’t, however, be any sort of retirement loans out there, so put yourself first on this one.

Your 40s

If you’ve been saving in your 20s and 30s, you should be well on your way toward a healthy-looking retirement account. Unfortunately, a lot of people hit their 40s and still don’t feel like they have substantial savings. In fact, Bankrate writes that 35 percent of workers between the ages of 45 and 54 have less than $25,000 in retirement savings. If that’s you, it’s time to amp up the saving even more.

1. Hit your savings maximum. If you’ve been saving a significant portion of your paycheck for the last 15 to 20 years, you may not need to do much to your habits. If you’re falling behind, you’re going to want to work harder. Make sure your 401(k) is funded up to the maximum limit, says Bankrate

2. Invest excess income. If you have been saving the maximum in your retirement accounts each year, it may be time to consider investing your excess income. One option is to add tax-free municipal bonds to your fixed-income allocation, writes Kiplinger. You could also consider an IRA; you’ll never have to pay taxes on a Roth IRA. If your income is too high for a Roth IRA, you can also consider a nondeductible IRA, which is open to anyone, according to Bankrate.

3. Consider a second job. If you’re really behind with your retirement savings, it may be time to consider getting a second job to help increase your disposable income. You can then place that extra money in your retirement savings. “Consider that an extra $200 per week for 20 years can add an extra $230,271 to your retirement nest egg, assuming a conservative rate of return of only 1%,” says Investopedia

Your 50s

Retirement suddenly seems more obtainable once you hit your 50s. You’re earning more at work and may be to the point where you have fewer expenses: your children are probably out of the house and your mortgage should be paid down. Again, though, there are always factors that can interfere with this. Paying for your child’s college education, disability and illness, or layoffs are all dangers that could be impacting your retirement account. Your 50s should be the time to focus on income growth, reduce risks and consolidation, and refine your retirement assets, per Milestones and Lifestyle Planning Services.

1. Continue saving. “Your earning power and ability to save are at their highest. Make the most of this opportunity. Bonuses and other lump sum payment should be earmarked for savings, your emergency fund is now aiming to exceed a balance which will cover one year’s worth of living expenses,” said Milestones and Lifestyle Planning Services. You should also have a fund in place to cover expenses relating to your child’s education, as well as the maintenance of your parents and other dependents.

2. Use catch-up contributions. Once you hit 50, you can begin to take advantage of catch-up contributions, which allow you to contribute extra income to your retirement plans. This step is particularly important if you may have fallen behind on your savings at some point, says Bankrate. Catch-up contributions allow you to save more later in life and can help you build your savings faster.

3. Accelerate debt repayment. If you still have some debt racked up, now is the time to work on getting rid of it. You won’t want to enter retirement making large payments toward your debt. If you still owe a lot on your mortgage or have a lot of credit card debt, put that first so you can get it paid off by the time you retire, CBS News says. 

Your 60s

If you’re planning to retire at 65, it’s time to take a close look at your finances. You’ve only got a few years left to save, budget, and plan. 

1. Figure out spending. Don’t guess at how much money you’ll need when you retire. Instead, look at your bank accounts going five years back. Add up your outgoing expenses and average it over five years. If big expenses, such as your mortgage and car, are paid off, you can subtract those items. Then add up your income, including investments and Social Security. Forbes writes that you should look at both numbers and bridge any gaps. If it looks like there may be a shortfall somewhere, start figuring out how to increase your income or lower your costs.

2. Draw up a retirement budget. Once you know what you’ll have to spend, come up with a detailed budget on what you’ll be spending each month, and don’t forget to include important items such as medical costs. Once you’ve come up with your budget, CBS News suggests running through scenarios to make sure your budget holds up. If the market tumbles, are you still OK? What if you have to withdraw 6 percent instead of 4 percent one year? Just make sure that your retirement funds and budget can handle some unexpected downturns.

3. Determine where you’re going to live. This is a critical step, as it will let you know what you can afford. “We live in a vastly different world than the one our parents retired in. Medical care in Panama City, Panama, rivals that of Panama City, Fla. And for that reason, you might consider the former a viable option for retired life,” according to CBS News.

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