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Financial Planning through the Decades

| October 25, 2021

Financial planning allows individuals to achieve their short- and long-term goals. Regardless of how old you are, there is always a need for effective financial planning. Here are some ways to plan throughout the years, targeted but not limited to certain age groups:

In your 20s

  1. Build Credit – Credit scores can be used to determine insurance rates, credit card interest rates, mortgages, and can be evaluated by employers. By simply not using a credit card enough, you could be placing yourself at a disadvantage. When you are young, try to have a few easy monthly payments consistently credited to begin building your score.
  2. Retirement Accounts – Now is the perfect time to begin contributing to your 401k and Roth IRA. With most people having approximately 40 years left before they retire, that is a substantial amount of time to let your retirement accounts compound. Coupled with the friendly tax breaks of the 401k and Roth IRA, if you begin aggressively saving in these accounts in your 20’s you are likely to be in good financial shape come retirement.
  3. Life Insurance – Probably the last thing on most people’s minds in their 20s is life insurance. However, you can obtain a significantly cheaper policy when you are young and healthy. Purchasing inexpensive term life insurance when you are young can lock in adequate coverage for the coming 20 to 40 years as your obligations grow i.e. you start a family, buy a home, etc. And, locking premiums in while you are healthy means your premiums remain the same for your policy’s term regardless of a change in health or an increase in age.

In your 30s

  1. Create a Retirement Plan – Now that you are in your 30s, you have an idea of what you value, and the lifestyle you want to enjoy. Thus, you have a better idea of your expenditures which can help you plan and perform retirement calculations more effectively. By beginning the planning and saving early, your end-goal becomes more feasible. If possible, increasing the amount you contribute to your 401k (pre-tax and/or Roth 401k) and individual Roth (until phased out) as you earn more has merit.
  2. 529 Plan – Like retirement, the earlier you begin saving for your child’s college education, the better. 529 plans provide several tax and financial aid advantages which is why they are the optimal place to accumulate money for your children. Student loans are becoming larger and more burdensome, by utilizing the 529 early you can set your child up for success.
  3. Emergency Fund – If you do not already have an emergency fund at this stage, it can be extremely beneficial to set aside enough cash to cover essential expenses for a minimum of 6 months. This provides peace of mind as well as helps lessen the financial impact of an unexpected life event.

In your 40s

  1. Increase Savings – Retirement is getting closer, and time is running out, thus long-term financial stability should be at the top of your priorities. Make sure you are putting enough into your retirement accounts to be able to have sufficient wealth upon retirement to meet your desired lifestyle. If you were not effectively setting aside money earlier, you may want to strongly consider contributing a larger portion of each paycheck to retirement savings accounts.
  2. Redefine Long Term Goals – What do you want your future to look like? Do you want to retire early? Do you dream of owning a vacation home? These are goals that need to be clarified now so you can take the appropriate steps necessary to achieve them in the future. Write down your goals and do the calculations to figure out how you can fiscally make them happen.
  3. Create an Estate Plan Including a Will – It is extremely important to draft a will, choose your powers of attorney and legalize your health care directive if not already addressed. A will ensures that your assets will be distributed as you wish and can determine guardianship if you have children. Creating your powers of attorney, a trusted person who will make decisions on your behalf when you cannot act for yourself is critical. Make sure it’s someone you trust with your life. And establishing a health care directive is important as it states your end of life wishes. Your family will be grateful that you took the time to do this hard work, so they don’t have to guess about your wishes.

In your 50s

  1. Shift Portfolio Objectives – Retirement, for many, is usually within 10 to 15 years at this point. It is important to determine whether a rebalance in your investment allocation is appropriate. Keep in mind that being too conservative too early can be detrimental too. If your life expectancy is 90+, your assets will need to cover you for many years. Can you afford to be too conservative? Maybe, maybe not. Consult with your advisor.
  2. Know Your Tax Profile – Approaching retirement and upon retirement, there are a multitude of tax implications depending on your types of accounts, assets, and how you plan to transition into retirement. Knowing or getting help from someone who is educated regarding tax laws can help you mitigate your tax expenses.
  3. Consider Long-Term Care Insurance – As you and your potential partner are aging, it is practical to consider long-term care insurance. Depending on your family history, health condition, and other factors, it can be a smart idea to invest in coverage to ensure you won’t be blindsided with extraneous expenses post retirement.

In your 60s

  1. Decide When to Claim Social Security – The longer you wait to claim social security, the larger your check becomes once you start collecting. If you claim your social security too early, you could be wasting thousands of dollars. It is important to evaluate your retirement plan and health (specifically life expectancy) in context of your financial plan to determine when to optimally claim your social security benefit.
  2. Fine-tune Retirement Plan – Now that retirement is right around the corner, polish your plan which is composed of projected goals, expenses, income, and assets. Doing so will ensure you are prepared for your upcoming transition. Being realistic and adjusting along the way as fundamental life shifts occur will help you continue to live within your means and gives you a reasonable chance of not outliving your money.

If you have questions about your overall situation, please reach out. And feel free to share some of these ideas with those you care about including your adult children. They cannot get started saving early enough.