From anti-aging skincare to mobility-based exercises to nutrient-dense smoothies that promise to extend our lives, self-care practices that promise to improve our golden years are becoming more and more popular. And while I love a collagen-infused latte just as much as the next gal, I also want to remind you that one of the most important parts of preparing for our senior years is preparing financially.
As a personal finance expert who also happens to be a millennial, I know that retirement can feel a long way away. As such, it’s easy to put retirement savings on the back burner until we…
…have more disposable income.
…are more secure in our careers.
…have more free time to dedicate to figuring out a retirement plan.
Trust me, I get it – saving for retirement can feel overwhelming, especially for people in their 20s and 30s that feel like their retirement is far off. But just like wearing daily SPF, saving for retirement is most effective when we start doing it as early as possible.
Fortunately, this process does not have to be complicated or intimidating. While saving for retirement is one of the longest savings goals anyone will ever have, having a comprehensive retirement plan with clear financial goals can make your retirement planning streamlined, effective, and easy to track even over 30 to 40 years.
Every person’s retirement planning and savings goals will look different, but there are some general retirement savings goals we can all hold at various points in our lives to make sure that we are adequately preparing for our retirement.
How to prepare for retirement in your 20s
Start saving early: Our 20s offer us a very unique advantage to saving for retirement. While we may not be far along in our careers or have as much extra income as we will in the coming years, we have an abundance of time. The earlier you start saving for retirement, the more time your money has to grow through compound interest. Even if you can only afford to contribute $20 a month into a retirement account, start doing so as early as you can so that money has as much time to grow and increase in value as possible.
Take advantage of employer matching: It is often in our 20s that we first receive the opportunity to set up a retirement plan through our employer. If your employer offers a 401(k) or another retirement plan with matching contributions, make sure you're taking full advantage of it right away by contributing at least enough to get the maximum match (aka the closest thing to “free money” we can get).
Review and adjust your plan regularly: Many people in their 20’s will experience changing jobs, increasing their income, getting married, making first-time investments, etc. As your financial circumstances change, your retirement plan may need to change as well. For example, if you receive a promotion at work with a pay raise, you should adjust your retirement savings contributions accordingly with your change in income. Review your goals and savings plan regularly and make adjustments as needed to ensure you stay on track to meet your goals.
How to prepare for retirement in your 30s
Increase the amount that you save: Your 30s are typically your peak earning years, so you should consider increasing your retirement savings contributions if you can. You still have plenty of time to take advantage of compound interest, so prioritize making appropriate adjustments as your financial circumstances change.
Take advantage of tax-advantaged accounts: In addition to saving in a 401(k) or another employer-sponsored retirement plan, consider opening an individual retirement account (IRA) to take advantage of tax-deferred growth. You can also contribute to a health savings account (HSA) to save for potential healthcare expenses in retirement.
Prioritize investing: If you haven’t already, your 30’s are a great time to actively invest in the stock market. Utilize an investing plan that focuses on consistent investing in a diverse collection of assets to maximize growth and protect your investments from market volatility,
Apply for life insurance: Many people in their 30s are buying homes, getting married, or having children, so it’s a good idea to apply for life insurance during one of these major life events. This will not only protect your loved ones in the case of your passing, but it will also give you peace of mind as you navigate a very full and busy season of life.
How to prepare for retirement in your 40’s and 50’s
Save as much as you can: Your 40’s and 50’s are critical decades for retirement planning. If you haven't saved enough, now is the time to ramp up your savings and make up for lost time.
Review your investments: In your 40s, you should have a good idea of how much you will need to save for retirement and how much risk you're comfortable taking with your investments. Whereas in your 50s, preserving your wealth will be critical, so you may want to consider reducing your risky investments and redirecting those contributions to less risky investments. Review your investment portfolio every few months and make any necessary adjustments to ensure it's aligned with your goals and risk tolerance.
Take advantage of catch-up contributions: If you're 50 or older, you can make catch-up contributions to your retirement accounts above the standard contribution limits. This can help you save more for retirement and make up for any years in which you didn't save enough.
Create a retirement plan: As your retirement approaches, it's important to start creating a plan for when you want to retire and what your retirement lifestyle will look like. Consider factors such as how much income you will need, where you want to live, and what activities you want to pursue. Make sure that your current retirement savings plan aligns with your desired retirement lifestyle and timeline.
How to prepare for retirement in your 60s and beyond
Keep saving: If you're still working in your 60’s, continue to save and invest as much as you can. This will help you build a larger retirement nest egg and provide a cushion in case you need to retire earlier than expected.
Create a retirement budget: The first step to managing your finances in retirement is to create a budget. This will help you understand how much money you have coming in and going out each month and will allow you to make informed decisions about your spending. The priority for this budget is to stretch your retirement savings as far as possible, while still allowing you to live your desired retirement lifestyle. Make sure this budget is both realistic and sustainable for the many years you are sure to enjoy in your retirement.
Plan for unexpected expenses: It's important to have a plan in place for unexpected expenses, such as medical bills or home repairs. Consider setting aside some money in an emergency fund to cover these costs.
Adjust your investing strategy: As retirement approaches, focus on preserving your wealth and ensuring your investments are well-positioned to provide a steady income in retirement. Look for opportunities to minimize risk and create a sustainable withdrawal strategy to ensure that you will be well provided for in your retirement.
Here’s to making your senior years golden!