Life Stage Savings

In each stage of life, investors should have different goals and strategies for retirement savings. Whether you are retiring in three years or 30 years, you need the right mindset about managing your money: Saving money goes hand-in-hand with earning money, and you always need to be saving for the future.

Just starting out

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When you are starting your career, find out whether your company provides a matching retirement plan contribution – and, if so, how much. You want to set your contribution amount to a level that will take full advantage of your company match at the least, then continue to increase your contribution as you receive salary increases

When you have 30+ years until retirement, a portfolio that contains mostly stock funds is appropriate because, when the market declines, you have time to financially recover (and, possibly, benefit from the downturn).

Getting Started Tips:

  • Take advantage of your company match, if it is provided.
  • Create a budget and stick to it. Learn to live within your means. Set yourself up early to be financially responsible and avoid issues with debt.
  • Saving early is the easiest way to accumulate wealth; everyone needs an “emergency account,” along with retirement savings. It is generally advisable to have three to six months’ worth of living expenses in your emergency account.
  • A good rule of thumb is to increase your contribution amount every time you get a salary increase.

Mid-career investor

At mid-career you likely have more expenses and responsibilities. Your salary is significantly higher, but life is getting more expensive. You may have children to care for, and you likely will want to save for their future. If you aren’t already, a good goal would be to contribute 10-15% of your salary to your employer-sponsored retirement plan.

Mid-career Tips:

  • Increase your retirement savings every time you get a salary increase.
  • Along with your retirement savings, have an emergency account. It is generally advisable to have six to nine months of living expenses in your emergency account.
  • Putting away some money for your children’s future education is a priority for many parents, but remember to continue to save for your retirement.
  • Review your budget at least annually to account for new expenses and changes in your income.

Starting to think about retirement

Your financial obligations may be decreasing now or very soon as children move away and finish college. If you have been fortunate enough to max out your contributions, you’ll be glad to know you can contribute an extra “catch-up” contribution starting at age 50.

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Thinking about Retirement Tips:

  • Start thinking about decreasing your portfolio risk level. A high percentage of risky investments becomes less appropriate as you near retirement. Discuss your investments with your financial adviser to make sure you are shifting to a more conservative portfolio.
  • Contact your retirement plan provider to take advantage of the catch-up contribution.
  • It is a good time to focus on eliminating debt; you should try to enter retirement with as little debt as possible.
  • Develop a tax strategy for your various sources of retirement income; many people eliminate Roth contributions as they near retirement because pre-retirement is often the time incomes (and, thus, tax brackets) peak.

The retirement years

The time to retire is here, and you are now eligible to collect Social Security benefits. You may need to plan distributions from your retirement plan. A conservative portfolio is appropriate for most retirees, meaning the majority of your money will likely be in bonds and cash. But a small portion of your retirement savings will continue to be invested in stock funds providing the opportunity for a moderate amount of long-term growth to keep pace with inflation. Now it's time to stick to your budget, since you live on a fixed income.

Retirement Years Tips:

  • Do not underestimate the costs of health care during retirement; this is usually a retiree’s biggest expense.
  • Plan your expenses. You may not have a mortgage payment anymore, but other expenses may increase - like travel and entertainment.
  • Engage in estate planning and talk to your beneficiaries.