Financial Milestones Through The Decades, How To Keep Your Money On Track

When it comes to financial management, the questions seem endless. How much should you save for retirement? Are you on track to reach your goals? What are your goals in the first place? How do taxes come into play? Are you investing in the “right” ways? Today, we’ll break down some financial milestones to shoot for throughout your life.

The Roaring Twenties

Your twenties are a pivotal time to start building a strong financial foundation. Here are the core areas to focus on. 

Start Investing

With retirement not even visible on the horizon, it’s so easy to put investing off for another day. But don’t wait to put money away for retirement. Start with your employer-sponsored retirement plan, like a Roth 401(k). Does your company offer a match? If so, contribute at least enough to get the full match and steadily increase as you earn more. From there, let compound interest do what it does. Start investing, even if it is just a little at a time.

Build a Healthy Credit Score

Build a healthy credit score by using credit responsibly, paying off bills in full every month, and avoiding lifestyle inflation with your first job. Doing all these things can open up access to loans when you’re ready to buy a house, start a business, and more. Several free sites and services can help you monitor, track, and see insights into improving your credit score. Additionally, carefully consider online protection via cybersecurity, identity theft, and the like. By arming yourself with the proper protection, you get ahead of future threats to your credit score.

Create and Maintain a Cash Flow Plan

It’s important to know the inflows and outflows of your money regularly—making a cash flow plan critical to building wealth. Mastering this skill in your twenties will pay off later when your income picture and financial situation get more complicated. So, what’s a cash flow plan? It helps you manage how much money you have coming in (salary, side hustle, bonus, equity compensation, etc.) versus how much goes out (housing, utilities, debts, taxes, insurance, entertainment, etc.)As a household, make sure that there is a “home” for all of the income that you are taking in. Writing it down, using a spreadsheet, or finding a slick app are all great options to help you master your cash flow plan. The best plan is the one that works for you and that you can stick with.

Consistently Pay Off Debt

Depending on your situation, you may or may not have a debt to worry about during your twenties. The most common is student loans or credit card debt. If you have credit card debt, aim to pay it off quickly (no matter your age). Interest rates on credit cards are sky-high, and maintaining balances on a credit card hurts your credit. Even more importantly, with such high interest rates, you pay more than you borrowed. If you have student loan debt and are past the grace period, get yourself on a student loan repayment plan. Building a plan to steadily pay off your student loans will give you a sense of accomplishment and peace of mind as you enter your thirties.

The Growth-Minded 30’s

Your 30s mark a growth period to cement financial habits that set your future self up for success. Below are key areas to focus on during your 30s.

Increase Retirement Contributions

After a decade of working, you’re likely earning more money. If this is the case, you can contribute more to your retirement plan. Aim to defer 15% of your earnings and max out annual contribution limits. The earlier you reach these goals, the longer the time horizon you have to take advantage of compound interest.

Diversify Your Investments

Consider diversification multi-dimensionally. First, see if your retirement plan accounts (401(k)’s, 403(b)’s, etc.), IRA’s, brokerage accounts, etc. are diversified across the different asset classes and sub-asset classes. At a broad level, this would encompass the following:

• U.S. Stocks (Large, Mid, Small Cap)

• International Stocks (Large Cap)

• Alternatives (REITs, Gold, Commodities, Energy, etc.)

• Cash

Second, consider where you are investing (or the tax diversification). Are you only putting money into your employer-sponsored retirement plan? Or are you also contributing to Roth accounts? What about outside of retirement? Your goal is to build a comprehensive investment plan that is well-diversified. To help, consider the following:

• Employer-sponsored retirement plans

• Health Savings Accounts (HSAs) if your employer offers this and you’re eligible to contribute

• Traditional IRAs and Roth IRAs

• Taxable brokerage accounts (Individual, Joint, Trust, etc.)

• Real estate

• Alternative investments

Optimizing various accounts will serve you in the long run, ensuring you have different buckets (and tax treatments) of money to consider in retirement.

Advocate For Yourself at Work

Taking control of and consistently improving upon your earnings prospects over time is something people often don’t take advantage of, but they can pay serious dividends in the long run. Ask for a raise, take on additional projects, earn some side income, figure out how to generate passive income, etc. You can do these things during your thirties that your future self will thank you for.

Get Serious About Your Goals

Consider your long-term and short-term financial goals. Do you want to get married, have a child, buy a house, save for your child’s education, start your own business, etc.? No matter what the goal, plan for those expenses. By creating a financial plan that aligns with your values and considers your short-term and long-term goals, you will be more prepared to achieve them. Set yourself up for life and financial success by planning for the things most important to you.

Put More Money Towards Debt Repayment

Remember, you’re probably at a point in life where your income has grown. While saving and investing for your long-term goals is important, you must also consider paying off debt. If any of your debts have high-interest rates or if you simply just want peace of mind, do what you can to put more money towards debt repayment. It’s also essential to consider the debt you take on in your 30s. Perhaps you’re buying your first house or taking out a small business loan. You want to use debt strategically and not overspend on things that won’t help you reach your goals. 

Get Clear on Your Relationship with Money

Money is emotional, and often, we never take the time to consider our relationship with money. As you enter your thirties, do the work to better understand your relationship with money and what hurdles you may have to overcome. Doing so gives you a more balanced and holistic approach to your finances. This is especially important for couples. Do the hard work now to talk about money to ensure you’re both on the same page. By talking now, you could save yourself from stress and emotional strain down the line since money can be a friction point in relationships. 

Select Proper Insurance Coverage

Risk management is not an exciting or fun topic to discuss, but you want to ensure your loved ones, family, and friends are taken care of if something happens to you. Look into life insurance, disability insurance, health insurance, auto insurance, liability, etc. Your insurance needs are personal and may change depending on your current income, liabilities, marital status, whether you have children, etc. The right insurance coverage provides peace of mind as you step into your next phase of life.

The Steady and Consistent Forties

Your forties are a significant financial decade. Here are some milestones you should consider.

Max Out Retirement Plans

In your forties, prioritize maxing this account each year. 

Estate Planning

Start thinking more seriously about estate planning and your legacy goals. You may have a piecemeal plan now, but it is time to think strategically since you have more wealth. What do you want to happen to the wealth you’re building if you pass away unexpectedly? Who should that wealth go to, and when? Are there charities you would consider or only family members/loved ones? Get clear on your wishes, and don’t leave any stone unturned.

Prioritize Saving for Your Health

This could mean many things for different people. First, do what you can to proactively avoid future healthcare costs, like maintaining a healthy lifestyle, prioritizing health and wellness, investing in healthy habits, etc. In addition, if your employer offers a Health Savings Account (HSA) or a Flexible Spending Account (FSA), take advantage of it. By putting money in these accounts, you create a savings bucket for your healthcare needs. 

Teach Your Children About Money

Most schools don’t do much in terms of educating children about personal finance and financial literacy—though that may be changing soon with new bills passed in twenty-one states requiring financial education in high schools.  If you have children, be intentional about teaching them about money. This could be as elementary as exposing them to a piggy bank to help them create their first investment account. Share the wisdom you have around money with your children; they will be better off for it.

The Eye-On-The-Prize Fifties

Your fifties are here, and you are getting closer to retirement, so here’s what to think about throughout this vital decade. 

Catch-up Contributions

With retirement approaching soon, take advantage of catch-up contributions. If you are fifty or older, you can contribute more to your 401(k), IRA, HSA, and other tax-advantaged accounts.

Debt Repayment

Now is the time to get serious about debt repayment. If your goal is to retire debt-free, see if you can refinance or consolidate loans, redirect extra funds toward debt, etc.

Long-Term Care

Long-Term Care can considerably impact someone’s financial plan should they need it. If you anticipate requiring such care, you could consider getting a long-term care insurance policy in your mid to late fifties. If you wait too long (by your sixties), the premiums get drastically more expensive. However, you don’t always need an insurance policy to protect against this cost. You could use funds in other accounts (investments, HSA, etc.) to help cover care. 

Competing Financial Goals

In your fifties, you’ll probably have to prioritize. You’ve been managing competing goals throughout your life. Still, this decade brings a whole host of financial needs, like optimizing retirement savings, supporting your adult children, and being a resource to your aging parents. It’s emotionally and financially tough to give 100% to all of these competing goals. See what is most important to you, stress test your financial plan, have the tough conversations, and do the best that you can.

The Glory-Days Sixties

Retirement is just ahead on the horizon, so here are the elements you need to put the finishing touches on your plan.

Filing For Social Security 

In your sixties, it’s time to make a plan to maximize your Social Security benefits. You can file at three general moments:

• Early at 62. But doing this will result in a permanent reduction in benefits, about 30%.

• On-time, at full retirement age (FRA). You’re eligible for 100% of your benefits if you wait until FRA. Find your FRA here.

• Late, any time after FRA up until age 70. When you wait to file after your FRA, you accrue delayed retirement credits until you turn seventy. These credits increase your monthly benefit. By waiting until seventy to collect, you could see an 8% bump each year. 

Since Social Security is likely a significant part of your retirement income picture, it’s important to make a plan to maximize your benefit. Married couples will also want to think about spousal and survivor benefits. 

Selecting A Pension Option

If you work for a company that offers a pension, you’ll have to decide how you want to receive your payments after retirement. The two broad categories of payment options are

• Lump-sum payments

• Annuity payments

Lump-sum payments can benefit people who want more flexibility with their money. You have more freedom to invest, spend, and structure funds how you want, like leaving money to your kids. The main drawback is that with a lump sum, the amount isn’t guaranteed for life like annuity payments. It’s also important to remember that pension income is taxed, so if you want to avoid a massive tax bill upfront, you could roll the lump sum into an IRA. Annuity payments come in several forms:

• Single-life annuity—highest monthly payment, but it only covers you, not a spouse or dependent if you pass.

• 50% joint and survivor options—monthly payments are slightly less, but if you pass, your spouse/beneficiary receives 50% of the benefit for their lifetime.

• 100% joint and survivor options—since the death benefit is higher, the monthly checks will be further reduced. With this option, your spouse would receive 100% of the benefit for life after you pass. 

• Life with Period-certain options—Think about this option like life insurance. If you have a term life insurance and you pass within the coverage window, your spouse/beneficiary would receive the death benefit. But if you pass after, they wouldn’t. With this option, you can get payments for your life with spousal protection for a certain amount of time, usually 10, 20, or 30 years. 

Plan for Your Retirement Cash Flow

With retirement so close, you need to consider your cash flow plan. First, identify your income sources. 

• Guaranteed income (Social Security, pension, etc.)

• Investments (retirement accounts, brokerage accounts, cash, real estate, etc.) 

Then, think about how much money you anticipate needing each year. Start by evaluating your current expenses. Most retirees need about 80-90% of their income, so what does that come out to annually? We can help you understand how much you need and how to use your resources effectively and efficiently throughout your golden years. 

Get Excited About Your Lifestyle

Planning for the financial side of retirement is half of the battle. But the other half is gearing up for your ideal retirement lifestyle. Start thinking through some questions:

• Where do you want to live?

• How will you intentionally fill your time?

• Where do you find meaning and purpose?

• Are there new experiences you want to try?

• Do you want to go back to school or take a course?

• How can you build a strong community and network of friends/family/loved ones?

As you can see, planning for your future takes a lot of thought, care, and energy. But it’s worth it to build a life you love. 

We Can Help

Life moves fast, and each stage takes a different level of focus when setting yourself up for financial and retirement success. Ready to learn more? Reach out today.