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👴 Guide to retirement planning
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Strategies for a successful retirement
Decade-by-Decade Guide to Retirement Planning: Start Early for Financial Security in Your 60s
We don't usually think of retirement when we're in our teens or even 20s. However, retirement planning needs to start from a very young age. Only the right planning can help you save enough to retire at the right age.
Here’s what you should do every decade to make sure you are on track to retire in your 60s.
Dedicate your 20s to making a career and home
Some people will ask you to focus your 20s on saving money, which is important, but not the only thing you should do in your 20s. You should start by concentrating on your career. 🧑⚕️
Most Americans start to work at a very young age. It's common for teens to have a summer job that may not pay well but can be enough to start saving for college.
The median salary of 16- to 19-year-olds is $620 per week, which comes out to $32,240 per year. That’s the median across all races, genders and education levels.
Earnings increase beginning in one’s 20s, as this age group includes some new college graduates. The median salary of 20- to 24-year-olds is $720 per week, which translates to $38,012 per year.
Your salary typically begins to reach a respectable level in your mid to late 20s. Most people will earn about $50,000 or more once they graduate. This is when you should set your eyes on making a home. We’re not talking about building a family but ‘real estate’.
In 2021, the typical first-time homebuyer was 33 years old; however, that has now jumped by three years due to surging prices and rates. Don’t be late and start thinking of getting a home in your 20s since expenses are typically low when you’re single.
Increase your savings in your 30s and get rid of debt
Most Americans get married when they hit the 30s. In 2022, the median age for the first wedding among women in the United States stood at 28.6 years. For men, the median age was 30.5 years.
Your expenses will increase when you get married and have a family. It can send your finances for a toss, so pay more attention to your financial plan and ensure you save a good chunk of your income.
In addition, get rid of all kinds of debt, including student debt, car loans, and mortgages.
Start with depositing a percentage of your paycheck each pay period into a 401(k), if your employer offers one. Many employers also match your contributions up to a certain percentage.
You should have savings worth at least 1x your yearly income, including retirement accounts, company matches and your investments. Separately, you should focus on building an emergency fund that contains at least 6x of your monthly expenses.
Make the right investments in your 40s
This is the time to increase your net worth. The chart below highlights the average and median net worth based on age:
In your 30s, your goal should be to get close to the averages mentioned above. Keep in mind the average figures are skewed by the most affluent households in the US, making the median net worth figures a better indicator of where different age groups actually stand.
You can use the chart above to create saving goals for each stage of your life.
But, do not make the mistake of putting all your money in a savings account. Be smart and start making clever investments at this stage. Put some money in stocks, some in real estate, and some in other assets so you can enjoy gains in a few years.
Investing in your 40s will give your investment 15-20 years to mature. Some assets will more than triple in this time period, thus you will have a good amount of money when you decide to hang the boots.
Start controlling your expenses in your 50s
It is natural for expenses to rise in your 50s due to your children growing up and health expenses increasing.
Paying for your kid’s college years can make a big dent later on in your retirement savings. Earmark savings for higher education by investing in a 529 account where your earnings and qualified withdrawals are tax-free.
We suggest that you also start looking for passive ways to earn money at this stage. Examples include dividends and rental income. This will ensure you have a decent flow of money even when your salary begins to decrease, which typically happens at this age.
Getting old, however, comes with additional benefits, including catch-up contributions. Workers aged 50 and older can contribute an additional $6,500 per year in their 401(k) and another $1,000 in their IRA.
Reassess your finances in your 60s
Now that you’ve reached your 60s, it’s a critical time to ensure you’ve saved enough. If you realize you haven’t, it may be worth making last-minute moves that can save you a considerable amount of money, like downsizing your lifestyle.
Also, it might be a good idea to get a Social Security estimate from the Social Security Administration to confirm the expected benefits. Social Security can replace up to 40% of pre-retirement income. But, do not go for early benefits.
Delaying truly pays off. Though you can start receiving benefits at age 62, you are entitled to 100% benefits at your full retirement age. Waiting to age 70 means your benefit amount increases even more.
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