Pensions are among the rarest of rarities and will never return. The future of Social Security is stressed, and the ultimate destination of our healthcare system is uncertain to say the least.
What’s a person to do? The answer is simple: Begin planning for retirement in earnest and implement your plan – the sooner the better. Here are three checklists, compiled by decade, that will help guide your planning and keep you heading in the right direction.
Your 20s and 30s
Thanks to the power of compounding, these are the best years to establish a strong retirement foundation. By starting early and aggressively saving, it may even be possible to retire earlier than you imagined. Pay attention to these key points:
- Aggressively contribute to your employer’s retirement plan; 15%, including an employer match, is a preferable target.
- If 15% isn’t possible, start lower and gradually increase the amount as your budget permits over time. One- or two-percent annual increases are a good starting point.
- Don’t neglect other financial priorities, such as minimizing/reducing debt.
- Develop a realistic budget that allows you to attain all of your financial goals ... and stick to it!
- Consider a robust exposure to stocks (equities) in your retirement account. Most people can tolerate 90% equities or more, due to their work and life expectancy time horizons.
Your 40s and 50s
These are the decades of increasing earning power; however, they are also characterized by competing financial demands, such as paying for college, large mortgages, and more. Keep your retirement on track by paying attention to the following:
- If you’re still not saving 15% annually, continue to increase in 2% increments until you’re there.
- Consider maintaining that robust exposure to equities, at least 60%. Your work and life expectancy time horizons are still significant.
- Consider adding long-term care insurance to your overall plan for retirement. It will never cost less, and it may help prevent financial disaster during retirement.
- If you’re 50 or older, take advantage of retirement plan “catch-up” provisions: up to $6,000 more annually to your employer’s plan and $1,000 to your IRA in 2019.
- Ensure that your old retirement accounts from previous employers are consistent with your plan. Better yet, consolidate them.
- Focus on further reducing or eliminating any remaining debt.
- Adjust your budget to reflect changing income and expense realities … and stick to it!
Your 60s and Beyond
Retirement is rapidly approaching. You may be looking at a few more years, or you may be finalizing plans for your transition. Here are just a few more things to keep in mind:
- Consider saving more than 15% of your income, again including an employer match.
- Budget permitting, take advantage of those “catch-up” provisions.
- Now may be the right time to explore a more balanced approach to asset allocation, while maintaining appropriate exposure to equities (perhaps 50% to 60%).
- Take a closer look at what your budget will look like in retirement.
Other Thoughts and Key Considerations
- Two factors will have the greatest impact on your ability to achieve your long-term retirement goals: 1.) how much you save, and 2.) how long you save. Start early, and let the power of compounding work for you.
- If you’re married or have a significant other, it’s essential to approach planning from a “household” perspective, rather than an “individual” one.
- All financial goals are not created equal. Retirement should normally rank first.
- Because of their growth potential, it’s important to maintain appropriate exposure to equities for your age.
Finally, begin working with a seasoned Certified Financial Planner by your late 30s or early 40s. There’s far more to successful retirement planning than saving. If you’re already in your late 50s or beyond, remember that someone famously said, “Better late than never.”