Like a far-off island on the horizon, retirement seems like a world away. But one day, after working hard for many years to get there, you will arrive on the island, and there is so much to enjoy. But did you plan enough ahead to really enjoy the benefits of your new lifestyle?
On an island, life can be pretty simple. You just need food, water, sunscreen, and maybe a novel or two. However, it might be nice to have a hammock and a boat to get off the island once and awhile. Maybe you will even want an icemaker and air conditioning to really live the good life. You could have planned for that, had you known that you would be on an island someday, but did you? And while you are just fine on the beach, you could be better. That is the funny thing with retirement. We all know that we will be there at some point, so why not plan for it?
According to the AARP’s “Consumer Bankruptcy Project” Report, the rate of adults 65 and older who filed for bankruptcy have more than doubled since 1991, revealing that many Americans are not even prepared to retire at all. Whether you are in your 30s, 40s, or 50s, there are steps you can take to ensure that you are more than ready for retirement, and that it is not just comfortable, but enjoyable.
In Your Thirties
An exciting decade of career-focusing, corporate ladder climbing, and establishing a foothold. Your 30s seems like a crazy time to even think about retirement. After-all, there are so many ways your money might be spent- food, clothes, housing, college loans, kids, cars, travel. The list goes on endlessly. But consider the retirement lifestyle you would like to have, and amidst your expenses, you might want to think about setting aside money toward those goals every month, and having those dollars work for you.
If you are eligible, consider enrolling in your employer’s 401(k), 403(b) or other retirement plan and taking advantage of the company match if available. If your employer does not offer a retirement plan, you may be eligible to contribute to your own Individual Retirement Account (IRA). It is never too early to get started, and because you are young and your retirement is still a distant thought, your largest asset is time. Be sure to take advantage of this.
In Your Forties
Your career is established, and you are financially secure. Retirement still seems distant, especially while in the thick of the daily grind. But it is closer than you think, so it might be time to reevaluate. Are your retirement goals the same as they were in your 30s? Are you still on track to retire when you want? And with the lifestyle you want? If you are not where you want to be, there is good news, you still have 20 years, or more, to make it happen. But you might want to get started immediately.
First, take a look at your current budget. As your income has increased, have you resisting the urge to increase expenses? During your peak earning years, it is not an easy feat, but living within your means may allow you to continue saving and investing wisely for your future.
Paying down high interest debts is often a wise strategy. Paying down debt as much as possible will allow you to avoid paying excessive interest. Also, you might want to review your 401(k) to ensure that your contributions are maximized. A general rule of thumb is to contribute 15% or more of your pre-tax income toward your retirement savings. You might also want to examine your investment portfolio and make sure your investments are aligned with your goals. Time is still on your side, so seize the moment (or decades) and get moving.
In Your Fifties
That dreamy island beach is looking much closer now, so it is time to get serious about planning for retirement. With peak earning and empty nesting at the forefront, it might be time to reduce risk, payoff debt further and save, save, save.
Entering a new decade can be a good time to revisit your goals and re-evaluate your investments. As retirement draws closer, you might consider moving some of your assets to more conservative investments. This could help minimize some of the wild ups and downs when financial markets are volatile.
With credit card interest at a much higher rate than mortgages, car loans, or even student loans, debt from purchases made with plastic should be paid off first. And as your focus shifts to saving money in smart ways, you may want to think twice before using credit cards for payment in general- unless you can pay it off each month without accruing interest and accumulating debt.
Once you hit 50, a new opportunity for savings becomes available: the perk of being able to contribute more to retirement accounts. Applying to both Traditional and Roth 401(k) plans, workers 50 and older can increase their contributions to their accounts by an additional $6500 for 2020. This is a total of $25,500 that can be socked ($19500 plus a catch up contribution of $6000) away if your company allows catch-up contributions, which most do1. If you do not contribute to a 401(k) or other employer retirement plan, you can contribute a total of $7000 ($6000 plus a catch up contribution of $1000) to a Traditional IRA or a Roth IRA2.
Trust the Professionals
No matter which decade you are in, a professional financial advisor may be a valuable resource. There is not a one-size-fits-all approach to retirement planning, and a financial advisor will be able to examine your unique situation and put you on the path that makes the most sense. Some people would be happy on their remote island with a couple novels, and others want that boat and air conditioning. With a little planning, you might just have everything you have been dreaming about.
Located in Truckee, CA, Pacific Crest Wealth Planning believes retirement & financial planning should be a highly personalized process. Effective planning may enable you to enjoy the freedom of your retirement years. Without it, it may take everything you have just to get by. As a fiduciary, we are obligated to put our client’s interest before our own. Please feel free to contact one of our CERTIFIED FINANCIAL PLANNER® practitioners at (530) 563-5250 or by email.
This article is meant to be general in nature and should not be construed as investment or financial advice related to your personal situation. Please consult your financial advisor prior to making financial decisions.
John Manocchio (CA Insurance Lic#0H73423) is a Registered Representative and Investment Adviser Representative with/and offers securities and advisory services through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.