Retirement planning doesn’t start when you’re 50 or older or if you’re within five years of retirement. Effective retirement planning needs to be done each decade. However, the tactic you use vary by age.
Save early and save often. The magic of compounding interest is most powerful the younger you are. A dollar saved today is much more valuable than a dollar saved in five years due to the magic of compounding. Our 20’s is typically when we earn the least and it’s hard to set aside 10%, 15% or more for retirement, but it’s a requirement or this is a wasted decade. Setting aside 20% of gross income is a valuable habit to start in your 20’s that will pay major dividends down the road.
Think long-term. If it hasn’t happened already, this is the decade of marriage, kids, buying a house and career. It’s easy to forget the need to save for retirement when they are so many other demands on our earned dollars. But save one must in your 30’s or it will be much harder to retire in your 60’s. Again, the habit of saving 20% of pre-tax income is the best habit to get into for retirement planning.
Stay the course or time to get on track. If you’ve developed good saving habits in your 20’s and 30’s, this is the decade to keep on course. However, if you’ve strayed off your retirement savings course (or heaven forbid have not started), this is the decade to get going because time is now your silent enemy. Right about in the middle of this decade, you’ll cross over to your halfway point in life expectancy. Think about it, at 45, you’ve lived about half your life. And you only have about half of your work life to create the nest egg you’ll need from age 65 to age 95 or so. Scary thoughts!
The golden decade – that is, the decade to go for the gold. In your 50’s, you’re thinking about not working any more. Or working less anyway. Early in your 50’s, retirement is a glimmer that shines through occasionally; in your late 50’s, it’s a flashlight. Your single retirement planning thought in your 50’s is save as much as you can and figure out how to save more. Time has now become less of a resource in the accumulation phase of retirement planning.
Glide path. In your 60’s, retirement planning is like flying a plane from Boston to Seattle. When you leave Boston, you head west and North. When you took off, if you’re a little higher, a little north, a little south, it doesn’t make much different as long as you’re headed in the general direction. But in your 60’s, you’ve crossed the Columbia River and arevstarting to line up for your approach. This is the decade to make final plans and like landing a plane, there is a long-checklist of things to think about and do. For example, where will you live, how much can you live on, what will Medicare cover, how will you use your time, what the heck is an RMD, who will be your companions now that you’ve left your work colleagues behind?
I know everyone’s journey through the decades is different. However, there are key tactics for you to follow if you want a happy next phase of your life after you stop working. Feel free to share this blog post with anyone younger (or older) than you. Think of it like a retirement flight plan.