Planning for retirement isn’t something you can do in a few years’ time — it’s something you should do your entire life. That idea, however, may seem daunting, so rather than get overwhelmed, here’s a specific retirement-planning task you should focus on during each decade leading up to that milestone.
Your 20s: Open a retirement account
Many people spend much of their 20s paying off debt, socking away funds to buy a home, and grappling with the challenges of being a financially independent adult. As such, you may not have the capacity to max out a retirement plan each year in your 20s, and that’s OK. What you should do during your 20s, however, is open a retirement account and start putting in some money, even if it’s just $50 a month. If your employer offers a 401(k), that’s a good place to start, especially if the company you work for matches contributions. If you don’t have access to a workplace retirement plan, you can save in an IRA instead.
Your 30s: Focus on your investments
A winning investing strategy could help you capitalize on tax-advantaged growth in your 401(k) or IRA, so your 30s are a good time to establish a plan and choose funds or stocks that align with it. It pays to invest your retirement savings aggressively, all the while staying focused on keeping your fees to a minimum. For a 401(k), index funds may be a good bet, since they allow you to benefit from broad market gains without incurring the hefty fees actively managed mutual funds charge that heavily eat away at your returns.
Your 40s: Boost your savings rate
You may not have the financial means to max out your retirement plan during your 20s or even your 30s. But by the time your 40s roll around, you’re likely to have already bought a home if that’s a goal of yours, and your salary may be more substantial than it was earlier on in your career, so this is the time to ramp up your savings rate and pump more cash into your retirement plan. Doing so at this stage of life will still give your money plenty of time to grow.
Your 50s: Play catch-up
Maybe you didn’t put much money into your retirement plan during your 20s and 30s, and your efforts during your 40s are still leaving you shy of where you want to be savings-wise. The good news is that once you turn 50, you get the opportunity to make catch-up contributions in your retirement plan, so if you’re unhappy with your balance, take advantage. For both 2020 and 2021, you can put an extra $6,500 into your 401(k) if you’re 50 or over, or an extra $1,000 into your IRA.
Your 60s: Protect yourself
Many people retire in their 60s — some by choice, and some against their will. In fact, you never know when health issues (your own or a loved one’s) might cause you to have to leave the workforce sooner than planned, so a good bet for your 60s is to play defense. Start shifting some of your retirement plan investments into bonds, and set yourself up with a backup income stream in case the market tanks and your savings take a beating. That income stream could be a robust emergency fund you keep in the bank, or a home equity line of credit you arrange for.
Sometimes, when you’re presented with a big task, it helps to break it out into steps and tackle each one individually. Such may be a good bet when it comes to retirement planning. Knowing what’s expected of you each decade could help you more easily stay on track so you’re ultimately able to enjoy the comfortable retirement you deserve.
