Three steps to financial wellness from your twenties to your sixties
Tips to improve your finances at any age.
In your twenties
1. Start saving. As you accelerate your career, be sure to check your employer’s pension / retirement plan. Take advantage of any matching contributions your employer offers. If you don’t have a job with a workplace pension, you may still be able to save through a personal retirement arrangement. Both ways of saving may offer tax benefits. To reach your retirement savings goals, you should aim to make additional contributions beyond what’s required, as a combination of government and company retirement programs may not replace sufficient income in retirement.
2. Do debt the right way. Lots of people in their twenties have two kinds of debt: credit cards and student loans. If you have a plan in place and understand your options for repayment, these types of debt need not take you off course. Check out refinancing options for your student loans and try to use your credit cards only if you can pay them back in full each month. If not, try paying in cash until you build the discipline of keeping within your means.
3. Take a long-term view. Give your money a chance to grow. Whether you are saving through a workplace pension, a personal pension, or saving in an individual savings or other account, it is important to understand your time horizon and the risk associated. Regularly review your savings and talk to a professional who can help you reach your goals.
In your thirties
1. Target your savings. You have a lot of goals to save for now. You might be planning, or be thinking about, getting married, buying a house and having a family. But it’s important to make the most of your retirement savings. Knowing how much you need to save and working towards savings milestones can help keep you on track.
2. Manage debt and emergencies. If you have debt (credit card or other loans), tackle the debt that has the highest interest rate and pay more than the minimum to help pay it off quicker. Then tackle the next debt, and so on, until you’re debt free (apart from a mortgage, which will likely be with you for some time). Avoid adding to your balance. You should also have an “emergency fund” of three to six months of living expenses readily available.
3. Save for the future. Just like during your twenties, you still should be thinking about saving for the long term. You should evaluate your goals, risk tolerance, financial situation and timeline, and work with a professional to design an approach that will help you reach your goals.
In your forties
1. It’s not too late to get started. Your twenties and thirties may have some of life’s big events, like getting married, having a family, and buying a house. It’s difficult to juggle all those expensive priorities and still start planning for something that seems so far away, like retirement. But it’s never too late to start the journey. When you’re in your forties, you still have twenty years or more to save, so start as soon as you can to give your savings as long as possible to grow.
2. Protect what you have. Make sure you have adequate life and disability insurance. Life insurance may help your family replace lost income and address other financial goals should you pass away unexpectedly. In addition, disability insurance will help you replace lost income if you should become disabled.
3. Be prepared. At this stage, you should have a will as well as designated beneficiaries for your pension and savings accounts. You should also have instructions on dealing with your other assets.
In your fifties
1. Catch up on saving. Starting in the year you turn fifty, consider increasing and/or making catch-up contributions to your workplace savings plan, if permitted. There will likely be limits on the contribution you can make to your pension while still receiving tax relief.
2. Protect what you have. Be sure you have the right amount of life and disability insurance. You may also want to start thinking about saving for long-term care you may need as you get older.
3. Estimate your cashflow. Can you live on the income you’ll have in retirement? Review your anticipated expenses and income while there is still time to make changes. Estimate your essential living expenses and your discretionary expenses. Next, estimate the income you expect to have, such as social security pension, private pensions, annuities, and withdrawals from your savings. Then compare your expenses against your income and see how long your money may last.
In your sixties
1. Wrap up your retirement plan. Determine how you’ll convert your savings into an income stream, such as taking systematic withdrawals, interest and dividends only, or periodic lump sums. Consider guaranteed income products, such as income annuities, to cover essential expenses in retirement. Make sure you’ve established a sustainable withdrawal rate as a percentage of your savings, based on your age at retirement and how long you expect to live.
2. Review retirement options. Think carefully about when you’ll start collecting your state pension. Deferring commencement could increase the payments you get when you decide to claim it. Check your state pension details from your statements you received in the mail or online; contact the appropriate authorities if you are not already receiving these.
3. Complete your estate plan. Don’t leave your financial affairs to chance. At a minimum, you should have a will and power of attorney documents. These allow someone else to step in on your behalf, with respect to your health or financial affairs, if you are unable to act. You will likely need support of a legal adviser for this.
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