As we all know, as we age and our lives change. Our financial responsibilities and investment strategies change along with it.
In most cases, there are two truths to abide by. You have saved as much as you can and invest according to your risk tolerance, time horizon, and goals.
But what else is there? How do my financial life and my investment strategy change with time?
Either you are just out of school or have been in the workforce for a few years. Regardless of which path you came from, there are two things on your list. Get rid of debt, or at least get it under control, and save for retirement.
There are several ways to plan for debt repayment.
- Debt Snowball
- Debt Avalanche
- Balance transfers (credit cards)
- Personal Loan (loan consolidation)
- Refinance (student loans)
Check out this post on paying off your debt, here.
Step two is saving for retirement. If the company you work for offers a retirement plan, sign up for it. Max out your contributions if you can, but at the very least, contribute enough to get the employer match (if it’s offered).
Also, open a Roth IRA. If you have a little extra, contribute some to a Roth IRA in addition to your workplace plan.
Your investments. Time is your best friend at this point. Most of your investment allocation should be focused towards growth. Don’t put all of your eggs in one basket, diversify among stocks and bonds.
Again, the majority (at least 70%) of your portfolio should be in stocks, in some form or another.
If you’re like the average American, your family starts to form around your 30th birthday. Hopefully, you’ve got a good head start on paying down your debt and saving for your retirement. Continue on that path.
With a family, comes saving for your kid’s college education, as well as other expenses (house, car, etc.). Contribute a little every month to a 529 College Savings Plan. The funds within this account can be invested aggressively, similar to your allocation in your twenties.
Your retirement savings is still in a good spot. Similar to your twenties, regarding the stock and bond allocation.
One last thing, get some disability and life insurance. If you have people that count on you, you need to protect them.
High earning years
More than likely, this will be your forties and fifties. At this point in your life, the average American is in their peak earning years, so take advantage of that and increase your retirement savings.
This will also be the time that your kids either go off to college or enter the workforce. Congratulations (kind of) you are empty nesters. You no longer have a college education to save for. More can go towards your retirement.
More than likely, though, you will have miscellaneous expenses from your kids that you will continue to pay for.
Your investment strategy will change slightly. You are getting closer to retirement so it’s time to start protecting what you’ve saved. A little less in stocks and a little more in bonds. Think 60/40 or 50/50.
You are in the home stretch! At this point, your debts (including your house, hopefully) should be paid off. All assets and your retirement savings should be looking healthy.
Your investment allocation will be similar to the last section. Definitely 50/50 if not 40/60, stocks to bonds.
Congratulations, you’ve made it to your retirement. This can be liberating for some, but for others, this is an emotional challenge.
You’ve spent the last 40 or so years saving for retirement and now you are expected to start spending it. This is very tough for a lot of people.
From my experience and in my opinion, you should retain some sort of activity. Something that gets you out of the house, something that forces you to socialize, and something that makes you use your brain.
Staying social and sharp mentally could add some extra time to your life.
Your investments should be conservative. At least 40/60, but the more conservative the better. And it’s usually not a bad idea to keep some of your savings in cash, for emergencies such as health expenses (which will certainly go up at this point).
You don’t have many or any, more chances to earn more money, so it’s very important that you protect what you’ve saved.
The above information can be very useful to the average person. Paying off your debt and making your retirement savings a priority is very important.
Unfortunately, there is a retirement savings crisis in America. People aren’t saving nearly enough for retirement. They are counting on other sources, like Social Security or pensions to fund their retirement.
This isn’t enough. You won’t receive enough from Social Security to support yourself and pensions are few and far between, nowadays. We all need to do a better job of saving.
This article was created for informational purposes only. The above items are not to be taken for personal financial advice. Please consult with a professional about your personal situation.
To learn more about retirement savings and investing, and for our disclosures, visit our website: www.crgfinancialservices.com.
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