Start Thinking “Big” in Your 30s
By your 30s, you might be seeing some returns in your labor, like upward mobility and a higher salary. This also means it’s a great chance to catch up on retirement contributions, especially if you weren’t consistent in your 20s.
If you can, max out your retirement plans. The 2022 contribution limit for a 401k is $20,500.
And if you weren’t disciplined at putting money away before, consider setting a goal this decade to save 15% to 20% of your pre-tax salary. With every raise, it’s also a great idea to increase the percentage of income you contribute to your retirement savings.
Remember, this 15% marker doesn’t have to be all on you; it also includes your employer’s contributions to your retirement plan.
While your 30s are an ideal time for career advancement, many also experience a time of career change.
A 2021 survey from Fast Company found nearly 60% of middle-income adults would like to change jobs. If you decide to move employers, speak with your HR representative about rolling over your employer-based retirement plan into your new employer’s offering (or an IRA).
Finally, since your 30s are for thinking big, start investing outside of retirement. Several advantageous investment ideas include:
- A brokerage account (more flexible than a Roth account, with no limit on withdrawal)
- A health savings account (HSA), which allows you to set aside pre-tax money for future qualifying medical expenses
- A 529 plan (tax-advantaged college investment savings account)
- A down payment on a house
If you’re going to buy a home in your 30s, check out our ”Done by 60” guide to maximizing retirement. Before entering a mortgage, we recommend you commit to owning the house for at least seven years (which takes into account the costs of moving), and that you pay off any remaining debts (student loans, credit cards, etc.).
Many people find a groove in their 30s. Make sure you have a precise spending plan, contribute as much as possible to retirement savings and other investments, and top off your emergency savings.
Climb the Ladder in Your 40s
Your 40s will likely be an era of further career growth and increased assets, and with only 25 years left in the workforce, they are also a pivotal time to build wealth.
But you’ve been in the workforce for a couple decades now, and this is when it’s common to consider your career path and development.
As an unofficial halfway point, your 40s are the perfect time to check in with yourself and ask meaningful career questions to evaluate if you are both fulfilled and adequately compensated:
- Where do you want to grow? How can your company help or hinder?
- Are you using all employer benefits offered?
- Are you eligible for equity compensation? If so, what type do you have?
- How can equity help further your goals?
You may be well established in your 40s, but it’s also a time when you may face more expenses than ever due to childcare, home improvements, debts, and car repairs (just to name a few). Be careful about the debt you take on.
Finally, remember to keep saving for education! The Education Data Initiative reports the average cost of education expenses in the US exceed $35k each year (per child), so keep that in mind when contributing to your child’s 529 Plan or similar savings account.
Keep Your Eye on the Prize in Your 50s
Your 50s are considered peak earning years, making this decade the perfect time to zero in on retirement savings.
You can start making catch-up contributions here, so it’s important to know your 2022 contribution limits:
- Workplace Retirement Plan Contribution Limit (401k, 403b): $20,500 with an extra $6,500 once you turn 50
- IRA Contribution Limit: $6,000 with an extra $1,000 as soon as you turn 50
- HSA Contribution Limit: $3,650 for self-only and $7,300 for families, with an additional $1,000 once you turn 55
We’ve all seen (and felt) the recent effects of inflation, which is a good reminder to reevaluate your retirement “number” and your monthly expenses.
Your 50s are the perfect time to work with a financial advisor to assess how close you are to your goals and determine practical ways to “bridge the gap”, such as reducing spending on unnecessary items and increasing contributions to retirement and investment accounts.
It is equally essential to consider your ideal retirement lifestyle and set goals that motivate you. What do you want your life to look like? Are there things in your life that are (or aren’t) serving you well?
Planning for your ideal lifestyle takes effort, but it’s an essential step to feeling fulfilled and at peace once you retire.
Lastly, focus on being debt-free, which carries many benefits as you prepare for retirement. Eliminating debt can free up cash flow, which you can then allocate to other priorities like maxing out your 401(k), IRA, and HSA. Taking these steps brings you closer to financial freedom and can add much-needed flexibility to your financial life.
Retirement is on the Horizon, Here’s How to Plan in Your 60s
You’re closer to the finish line, which means your desires may have changed, so it’s best to refine your retirement spending plan.
Start putting your lifestyle plan into action.
Think about questions that will help you pinpoint your goals and dreams for retirement:
- Do you want to live somewhere new?
- Are there any trips you would love to take?
- Are your monthly spending projections for retirement still accurate?
- What assets do you want to retain? Are you considering downsizing your home?
Another excellent takeaway from our ”Done by 60” guide to retirement is to work part-time, on your terms, doing something you love. Whether or not you still need that money, it will allow you to delay taking social security until age 70, which can benefit many people who expect to live into their 80s or longer.
Finally, consider creating a new healthcare plan. At 65, you’re eligible for Medicare, which is a great starting point, but Original Medicare has some coverage gaps. In addition to Original Medicare, you may need a supplemental plan such as Medicare Advantage, which often includes Part D for prescription drug coverage, and significantly lowers out-of-pocket costs. You can also look into Medigap or supplemental plans if an Advantage plan doesn’t work for you.
A Bond Through the Decades
Every step of retirement planning is key to helping you live authentically: from your first retirement contributions in your 20s to diversifying your investments in your 30s; from preparing for expenses in your 40s to streamlining your financial plan in your 50s; from finally reaching your goals in your 60s and what lies beyond.
When creating a strategy, it’s crucial to work with a financial advisor you can grow with and trust.
Abacus works to align your values with your goals, helping you create a retirement plan that’s both proven and personal, but with room to evolve as we evolve with you. Schedule a free call today with one of our advisors and get started.
