Financial Steps from Your Twenties to Your Sixties
Age is more than just a number when it comes to financial planning. Starting early can help give you a leg up on a comfortable retirement. This is particularly important for women because we live longer than men, are more likely to require long-term care services, and take more time out of the work force to care for children and family members. These financial realities make it even more important for us to start saving early, to save more as we earn more, and to plan carefully for those “time-out” periods.
In Your Twenties:
- Set Financial Goals. The first step to putting together a financial plan is to identify what you want, when you want it, and what it will take to achieve it. Be sure to write down your goals so you have something to refer back to as you plan.
- Live On a Budget. A budget doesn’t have to be onerous and it’s a key component of a solid financial plan. Start by writing down your monthly income, track and total how much you are spending monthly, and determine your debt-repayment obligations (i.e., credit card, student loans). After calculating your monthly expenditures, subtract that from your total monthly income. Allocate the amount you have left over toward savings. If you’re falling short on savings, think creatively about ways to cut spending.
- Make Saving Automatic. Once you’ve determined your target savings amount, consider setting up an automatic transfer from your primary bank account to a dedicated savings account each month. Also, do not miss an opportunity to enroll in your employer’s retirement plan, such as a 401(k) plan, and take advantage of matching contributions, if available. Whether you have access to an employer-sponsored plan or not, consider an IRA.
In Your Thirties:
- Set Up An Emergency Fund. Save and set aside enough cash to cover at least a minimum of three, and ideally six, months of living expenses in case of disability, unemployment or an unforeseen event.
- Seek Out Professionals. Identify a team of professionals (i.e., financial advisor, accountant, attorney) that you feel comfortable working with. Ask friends and family for referrals and interview potential advisors. Once selected, regularly review your financial plan with your team and be sure to check in during any life transitions such as having a child, or getting married or divorced, as these events may impact your plan.
- Define Your Investment Strategy. Work with your financial advisor to develop a target asset allocation for your portfolio. Tell your advisor when you would like to retire and discuss your tolerance for risk so that s/he can help you allocate your portfolio accordingly.
In Your Forties:
- Cover Yourself. Personal insurance includes health, life, disability or long-term and property insurance typically includes auto and homeowner’s. Learn about your insurance options and determine the type and amount of coverage that makes sense for you and your family.
- Protect Your Legacy. Even if you if don’t have children or consider your assets significant enough, still think about executing a will, living will, power of attorney and health care proxy to outline your wishes in the event that you are unable to make decisions for yourself.
- Maximize Contributions. With your earnings at its peak, now is the time to boost your savings. Contribute the maximum amount to your retirement plan. If you have children and haven’t done so already, start a savings fund for their college education. If you’ve already started a college fund, now is the time to maximize your contributions to it.
In Your Fifties:
- Re-balance Your Portfolio. Review your investment portfolio and make any adjustments to accommodate different cash-flow needs and changes in income and living expenses, as well as your changing vision of life after retirement.
- Catch Up on Retirement Savings. At age 50, you become eligible to make “catch-up” or extra, contributions to your IRA and 401(k) plan, or similar retirement plan. This year, the 401(k) plan catch-up amount is $5,500 over the basic limit of $16,500, for a total contribution allowed to $22,000. For an IRA, you can make an extra $1,000 contribution for a maximum of $6,000 for the year.
