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Retirement Prep for All Ages: Investing in Each Decade of Your Life - Quicken Loans Zing BlogRetirement will look different for everyone. Some of us want to downsize to get away from the hustle and bustle of the city, others want to see the world, and still others want to maintain their pre-retirement quality of life. For these reasons and more, savings needed for retirement will differ from person to person. But whether you plan to have a couple hundred thousand tucked away or a crisp million, you’ll need to come up with a long-term financial plan to get you there.

In most situations, the main way you’ll save for this life expense – and it’s going to cost a pretty penny – is through your investments. Let’s take a look at the way you should invest in each decade of your life, as well as the trials that come with it.

20s – Stretch Your Financial Legs

A lot’s happening in your twenties. Whether you’re graduating college, starting a new career, getting married or even having a child, this decade of your life is sure to bring some shaking and moving. Not only are the roaring 20s a time of transition, they’re also the perfect time to set the foundations for your financial future, specifically your retirement. That’s right; you should be thinking about your golden years even when they’re half a century away. But before we dive into the nitty-gritty of the IRA and 401(k), you should start by developing your financial infrastructure. This means getting your debt under control (or getting rid of it entirely), setting a budget and creating a fully-funded emergency fund. According to collegestats.org, your 20s are a time when your brain still easily establishes habits. So if you plan to make working out or brushing your teeth lifelong priorities, now is the time to create those disciplines. In the same way, you should develop financial habits.

When creating your budget, make sure you carve out a place for your investments. Whether you’re looking at a 401(k), a Roth IRA or some other type of retirement account, you need to figure out how much you need. A good way to do this is by looking at a simple retirement calculator.

While you’ll likely need hundreds of thousands of dollars for your retirement (some financial advisors will even say a million or more), that number isn’t nearly as big if you start chipping away at it during your 20s. And because the stock market is expected to produce 6-7% in interest each year, you’ll only need to set aside a small amount each month.

Even if you’re not making a great deal of money in your 20s, you should still be investing. Since you won’t retire for another 40 years or so, you have time on your side. And time is a powerful ally for your investments. The interest will continue to accumulate over the years; in fact, for most of us, the interest should end up being greater than the total amount you invest. If you still have some anxieties about investing, take a look at this article that highlights the historic risks and returns of the stock market.

30s – Prep the Financial Arsenal

If you aren’t already investing, now is the time to start. By this point, you should have your financial ducks in a row, but if you don’t, there’s still time. Start by checking out the suggestions given in the section above.

Risk is also a luxury you have in your late 20s and early 30s. You still have enough time to recover from substantial loss, so you should consider pursuing chancier, and potentially more profitable, investments. Mind you, don’t place all of your eggs in a single basket, but taking some risk could turn out to be profitable in the long run.

Your 30s are usually a good time to invest in your children’s education, too. Check out this article about the power of a 529 college savings plan. Their college education will probably come up within the next decade, and if you don’t want your kids to enter the professional world with over $30,000 in debt (like most Americans today), you may put a few dollars aside for them each month. Much like a 401(k) or IRA, the interest on a 529 will allow your investments to grow in leaps and bounds before the kids are ready to go to college.

40s – Come Down to the Wire

If you haven’t been investing at this point, you’ll need to beef up the amount you’re putting aside every month. It might also be a good idea to look for alternative saving opportunities. The first (and most painful) option is to scale back on your month-to-month expenses; you may have to downsize to a smaller home in order to give yourself more financial opportunities. Another option is to start looking for investment property. Purchasing rental property is an excellent way to make passive income, especially since the average investment property produces a 9% ROI each year. If you think you might have what it takes to buy a house and fill it with tenants, check out this article on the risks and responsibilities of being a landlord.

Your 40s are also a good time to pay down your debts. High interest credit card debt is overrated, so go ahead and take the proper steps to get rid of it. The same goes for car debt and student loans. Mortgages on a primary residence are sometimes an exception to this rule. A house is one of the most – if not the most – expensive costs in your life, meaning you’ll probably pay on it in your 30s, 40s and 50s. Some financial advisors suggest you pay down this debt faster to avoid accruing interest, while others suggest using that extra money to invest. You’ll need to think about which decision is the best for your situation.

50s – Stay on Course

This is the final stretch of the financial race. If you’ve kept up with your investments, especially if you started in your 20s, then you’ll feel confident about your upcoming retirement. Much like the decades before, you should follow a budget, build wealth through investments and pay off debts. You could even have your mortgage paid off during your 50s. This will allow you to have extra funds available every month. Instead of spending that, consider investing it.

Once you turn 50, you can start investing more money into your retirement savings plans. Contribution limits for 401(k) plans and IRA (including traditional and Roth) will change, allowing you to invest more each year. This is a great way to either get ahead with your investments or catch up.

Balancing your portfolio is the final piece to the puzzle. In your 20s and 30s, you could pursue riskier investments without completely endangering your financial security. The older you become, you might want to consider rebalancing your portfolio so that you’re protected from sporadic plummets in the stock market (think 2008).

The Path to Retirement

While there are some fundamental ways to prepare for this exciting stage in your life, the path to retirement is not the same for everyone. In fact, if you start planning early, there’s no reason you can’t retire before you’re 65. Retiring at 60, 50 or even younger is perfectly reasonable if you create a plan now. The most important part, though, is that you prepare for a time when you can’t work. In order to do that, buckle down, figure out how much you need and prepare for the best years of your life.

This Post Has 3 Comments

  1. Sounds like Donald is a CSRS employee. And everything he has stated is correct. We spend our careers to become eligible for these programs, only to be told you get too much from your retirement pension to received your Social Security benefits or it is a reduced amount.

  2. If you are a FERS employee paying into Social Security, you are eligible for SSA benefits, If you are an Offset, the rules are slightly different, but you should consult with your HR department because you are still eligible for SSA benefits.

  3. I am a civil service retiree I believe I’m approaching the 40 quarters eligibility of Social Security however the double dipping law allows me to draw nothing if I should die my wife draws 55% of my civil service retirement this would be more than her Social Security payments and she has earned being a registered nurse for 46 years if she should die I get none of her benefits nor any that I may have earned with my Pay in when I work they take Social Security out of my paycheck even though I get no Social Security opportunity If my wife dies I lose my best friend and a big part of my retirement income her social security

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