Financial Planning in your 20s, 30s, 40s and 50s

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Not sure when to start your financial planning? Of course, starting sooner is best, but what should we do if we start later in life? In honor of National Save for Retirement Week (October 18 – 24, 2015), New York Life shares some great tips on Financial Planning in your 20s, 30s, 40s and 50s.

Financial Planning in your 20s

Start saving early

Consider this crazy math: Assuming the same hypothetical rate of 5% return on the savings, a 25-year-old who invests $2,000 a year for 13 years can end up with more by the age of 65 than a 37-year old who invests $2000 a year for 29 years, even though the 37-year old invests more than twice as much!¹

That head start is what makes all the difference.

And here’s why:

When you save or invest in a given year, your money earns interest. The following year, you earn interest on your original money plus the interest from the year before. In the third year, you earn interest on your original money and interest from the first two years (and so on for years four through “however many you live”).

This is what’s known as a compound interest. And it’s one of the reasons you should start saving now, when you have decades ahead of you for that money to grow. To free up some cash for your initial investments, here are a few simple things you can start doing today:

• Be real: First things first. Be realistic about what you actually need and what you just “sort of want.” Invite your friends to dinner and have each of them bring a dish (it’s cheaper than takeout and a lot more fun). Learn to mend your clothes (and add your own touch to them). Save your favorite cup of designer coffee for when you absolutely need it—you’d be surprised how quickly you can afford a term premium.
• Embark on a tall order so you don’t come up short: Take the time to sit down and identify your goals: short, medium and long. Define them in clear absolutes: saving up for furniture, a car, or a honeymoon (short term); building a nest egg for a house or apartment (medium term); planning for kids, their college, your retirement (long term).
• Give yourself some credit: In order to qualify for the best interest rates on a credit card, car loan or mortgage, you’ll need to build a solid credit history. So pick a single card and stay on top of the payments.
• Cut the cord: If a parent or role model is helping you manage your finances, it’s time to take the reins and put yourself in charge. After all, whoever controls your finances controls your life—and your future.
• Think before you marry: Remember, your spouse will be your co-money manager, so financial values and views on spending and saving are something you should discuss before you consider a ring.
• Put your health first: Make sure you have continuous (i.e., no breaks in coverage) health insurance. Don’t let an unexpected health issue and the resulting medical bills diminish your savings.

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Financial Planning in your 30s

It’s time to get serious

While your 20s may have been spent getting to know your worth out on the job market, making some spending mistakes and possibly not putting saving for retirement on top of your priority list, your 30s are the time to be completely and absolutely serious about your financial future.

More likely than not, you’ll have to consider the financial needs of your spouse and/or children, which means your financial responsibilities and expenses are likely to increase as well. Don’t be thrown off track by short-term moves in the market and don’t get distracted by the headlines. Stay on course towards your personal goals. Remember that a disciplined long-term investment approach is still the best way to go. In addition to that general advice, here are some methods for addressing the challenges and coming out ahead:

• Get rid of it: Eliminate non-mortgage debt. Nothing frees up cash for your growing family responsibilities like paying off high-interest loans. If you didn’t take care of credit card debt in your 20s, now is the time to do it. Student loans and car loans come next.
• Be a number cruncher: It’s time to sit down and do the math. Figure out how much you need to retire and start saving for the investment plans you’ll want.
• Put yourself first: Don’t save for your kids’ college tuition before saving for retirement. It may be far easier to take a loan out for college.
• Spread the wealth: Diversify and protect your portfolio. You’ll need to weather both the ups and the downs securely.
• Ask the hard questions: Plan for the “what ifs” by insuring what you have. Homeowners insurance, health insurance*, disability insurance* and life insurance: they’re all crucial.

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Financial Planning in your 40s

Time to prepare for the second half.

With 20 years of work behind you and another 20 (at least) ahead of you, now is the time to prepare for the second half of your career and for retirement afterwards. If you’re fortunate to have a disposable income, try not to dispose of it all. You may want to consider an retirement plan to boost your retirement savings. Remember, you’re far more likely to need that discretionary income in your later years.

To help you secure both your own and your family’s financial futures, here are six targeted initiatives to consider during your 40s if not sooner:

• Create a master plan: Figure out when you want to retire, how much you want to earn each year and create a realistic map to reach your goals.
• Sock it away: Once you know how much you’ll need, stay disciplined and save consistently.
• Don’t skimp: You may have more expenses than ever; still, it’s important to keep in mind that every dollar you save now can potentially earn you as much as $10 in retirement income.
• Keep a close eye out: Scrutinize your retirement plan every couple of years. Make sure your retirement savings are living up to your expectations.
• Embrace change: Be open and flexible to changing your retirement age and amount you save as the economy and your portfolio’s performance shift in response to events.
• Protect your loved ones: Make sure the beneficiaries on all your accounts are up to date. If you don’t already have one, create a will. And determine if your life, disability* and homeowner’s insurance provides enough coverage for your family’s needs.

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Financial Planning in your 50s

Maximize your retirement savings.

If you haven’t started your retirement planning yet, then now’s the time to start. The good news is that you probably have 10-15 peak earning years left to reach your goals. Additionally, many of your larger expenses—like your mortgage—may soon be behind you, so one strategy would be to use those funds to save for retirement. Keep in mind that you’re entering a phase where market volatility can be more of a concern because you will have less time to recover from a dip.

And remember, if you’re in your peak earning years, you should maximize your 401(k) by making sure you are contributing enough to take advantage of your employer’s full match.

You’ll also want to put each of the following on a checklist:

• Look out for Number One: No more distractions. Your retirement plan should be your first priority now.
• Be calculated: Estimate living expenses and determine what your accounts will be worth when you retire. You can use the calculators available on the Internet to determine these figures, or you can contact your financial professional to give you a more accurate number.
• Consolidate: If you have worked for several employers over the years and have accumulated a number of smaller plans, consider consolidating them: this will give you a clearer picture of your plan’s overall performance. It can also make managing your portfolio simpler and easier. Note, however, that your asset choices may be somewhat limited if you choose this option.
• Make it an obsession: It’s important to pay close and frequent attention to your retirement plans. Be sure to review them yearly. At this stage, your portfolio and estate planning goals need close attention.
• Do a balancing act: Assess the risks and rewards of your retirement portfolio. Keep an eye on asset allocation and make sure you are looking at the percentage allocated to each type of asset at least once a year. Redirect future contributions or rebalance your portfolio between asset classes as necessary.
• Play catch-up: Part of the Restoring Earnings to Lift Individuals and Empower Families (RELIEF) Act of 2001 allows you to aggressively build your retirement account now, and in some cases catch up for lost time. Keep in mind, though, that the IRS has specific catch-up limits that apply to individuals 50 and older. Ask your financial professional to help you do all you can to maximize your nest egg now.

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