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Saving for retirement through the years

 
You’ve seen the ads. Older couples happily doing what they love. Walking on the beach. Traveling. Sailing. All because they saved their money toward a comfortable retirement. Now, while it’s true that saving for retirement is important, there’s something the ads leave out.
 
Because there’s more to saving for retirement than simply stashing money away. There are retirement strategies you can use throughout your life that can improve how your money grows, since each phase of life offers different challenges and new opportunities. How you prepare for those can make a huge difference in how well you retire.
 
Let’s look at those financial planning life stages – and their challenges and opportunities – decade by decade.
 

Between 20 and 30. Time is on your side.

For many in their 20s, retirement seems impossibly far off. And saving for something a lifetime away – with student loans to pay and the rent due – doesn’t seem like a priority. While it’s true many people starting out don’t make a lot of money, they all have one thing more valuable than a big paycheck. Time.
 
Start early. People think they need to save a lot to end up with a lot. The truth is, how long you save is often more important than how much you save. If you save just $100 a month starting at age 22, by the time you are 67 you’ll have over $321,000. But if you wait until you're 35 to save $200 a month, you’ll have just $220,000 at age 67. Those extra 13 years can make a huge difference by allowing your money to earn more money. That’s the power of compounding.
 
Live within your means. It’s easy to give into an impulse purchase. But if you simply wait a year or two for a raise or a better job, you’ll not only have the object of your desire, but cash in the bank too.
 
Pay yourself first. Once people get money in their hands, it usually disappears. Instead, pretend you don’t have it. Set up an automatic withdrawal from your checking to savings or a tax-deferred account, even as little as $50 a paycheck. You’ll never miss it.
 
Open a 401(k) at work. If your employer offers a 401(k), sign up. What many don’t realize is that the contributions come out of their paycheck before taxes. So most never notice the small decrease in their take home pay.
 
Take the “free money.” Often when an employer offers a 401(k), they also offer to match some of your contributions up to a certain amount. That’s your money. Take advantage of it.
 

Between 30 and 40. Make the most of your money.

Phew. You made it through your 20s. If you’re like most people, you job hopped. That’s okay. With each passing year, you gained more responsibility and earned more money. As your 30s begin, you’re settling into a career and for the first time, you are starting to take home a respectable paycheck. Make the most of that larger income by evolving your retirement saving strategies.
 
Stay on track. The savings strategies you used in your 20s are still valid. You still need to live within your means and pay yourself first. Just because you’re making more doesn’t mean you need to start spending more. Be patient. Wait.
 
Open an IRA. If you still have a 401(k) from your first job, or your second, or your third, good for you. But now it’s time to beef up those tax-deferred savings with an Individual Retirement Account (IRA).
 
Rollover accounts. Having a 401(k) here, there, and everywhere can make it impossible to know what you have. In fact, many people lose track of them, leaving billions of dollars in unclaimed 401(k)s. Roll that money over into an IRA so it’s all in one place.
  
Invest aggressively. You’ve got 35 years or more before retirement. Now is not the time to be timid. Put your money in mutual funds that offer a slightly higher risk, and a higher potential return. Even if you suffer a market decline, you have decades to make it up. Of course, you should always consult with a professional financial advisor.
 

Between 40 and 50. Protect what you’ve built.

While you’ve created a solid foundation in the last two decades, your life has probably changed dramatically since you started out. At this age, most people are married with children. You may also have a mortgage, perhaps a second home, cars, and other assets. Entering your 40s is an ideal time to make sure your strategies still fit your needs, and your family is protected.
 
Rebalance. The aggressive investments you bought earlier may not be right for you now. While you still want to keep some money in growth stocks, now’s the time to start shifting into less aggressive investments, since you have less time to recover from a potential downturn. It’s a balance you and a financial advisor should work out together.
 
Consider Target Date Funds. TDFs have become very popular, since they automatically shift money over time into more conservative investments as retirement nears – the “target date.” Investors appreciate the peace of mind they offer.
 
Life insurance. While life insurance is a key part of a smart financial plan at any age, by your 40s you have a lot more to protect. Fortunately, there are a variety of policies that can offer coverage, from term life to whole life. While the financial details vary, all can help protect your family and your assets should the unexpected happen.
 
Pay down debt. Chances are, you’ve accumulated some pretty big debts over the last 20 years or so – student loans, home, cars. But if you’ve been living within your means all this time, that’s okay. Your priority now should be winding down debt and paying it off. Ideally, by the time you reach retirement, you should be debt-free.
 

Between 50 and 60. Start playing it safer.

It’s been 30 years since you started saving, and your retirement plan is progressing nicely, giving you a healthy portfolio. It’s so big, in fact, that market volatility has a greater effect on your assets than your contributions. Now’s the time to look toward how you’ll begin living on your money, and away from aggressive growth. You don’t want to eliminate risk entirely, but moving out of your riskiest investments may be prudent.
 
Invest with caution. At 25, it made sense to invest aggressively, since you’d have plenty of time to recover if the market dropped. With just a decade or so left, moving more assets to conservative investments like fixed income can help protect you.
 
Catch up. No matter how you feel about turning 50, it’ll do wonders for your retirement savings. As of 2017, investors over 50 can contribute an additional $6,000 to a 401(k) and $1,000 more to an IRA each year.
 
Stash cash. At this point your career, you’re likely earning the most you ever will. But, that bigger paycheck also makes you a bigger layoff target. By this time, you’ve hopefully put away between six and twelve times your annual income, just in case.
 
Think about downsizing. By now, kids are headed off to college and maybe you don’t need so much space, or stuff. If you’re lucky enough to realize capital gains from the sale of your home, investing the proceeds could help generate additional income.

 

Between 60 and 70. Still more to do.

You’ve spent four decades living one life, now you’re about to transition to another. You’ll want to adjust your lifestyle and financial strategies to accommodate these last stages of retirement, from accumulation to distribution. Ease into it. Carefully consider every financial decision you make, since what you do now could affect the new life you’re about to start.
 
Put off retirement. That’s right. Put it off for as long as possible. Working longer comes with two benefits. First, delaying Social Security increases your monthly benefit. And second, staying active and engaged could help keep you healthy. 

Start a second career. If your job was always just a paycheck, now’s the time to do what you really love. And you don’t have to do it full time. Remember, if you’ve planned well, you can earn money and do something that really matters.

Make a plan. Knowing exactly the retirement you want will make it easier to pay for. Should you move to a state with lower taxes? Or more cultural amenities? A warmer climate? Or a college town? What will you do with your leisure time? Will you travel?

Rebalance. Now that you’re nearing retirement, you’re going to want to make sure your assets generate the necessary income without unnecessary risks. Remember, this money will have to last throughout your retirement. 

Watch your spending. You’ve lived within your means your entire life, so this should be nothing new. But it’s especially important now to stick to your budget.

Plan your legacy. If you’ve done really well, you may want to consider thinking ahead about estate planning that can help you provide for future generations.

Take minimum distributions. Many people don’t realize it, but certain retirement accounts require you to take minimum distributions, or face penalties. It starts when you turn 70, so make sure you’re ready for it when it happens.
 

70 and beyond. You’ve made it!

This is it! You’re finally retired. Enjoy it. This is your reward after a half century of hard work, sacrifice, smart planning, and savvy investing. With some careful adjusting and investing, your retirement plan should be well-positioned to help you live this last stage of your life exactly as you imagined. And with life expectancies and quality of life continuing to rise for older Americans, some of you can expect to be retired for 30 years or more.
 
Maybe you’ll fulfill a lifelong dream or two. Travel the world. Make a difference in the lives of others by volunteering. You spent a lifetime getting here. The rest is up to you.

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