You can begin planning for retirement at any age. Here's how to plan for retirement, by age, and set financial goals along the way with Fifth Third Bank.
Accumulating enough money for retirement can be a daunting task which is why it is important to start setting financial goals as early as possible. A study of consumer finances found that 48% of American households headed by someone over the age of 55 did not have retirement savings. This doesn’t have to be your fate. To help set you off on the path to financial independence, here are some suggested retirement milestones to hit at various ages to stay on track for a comfortable retirement.
Retirement Goals: Age 25
Build Your Credit
Your credit score indicates your creditworthiness when applying for apartments, mortgages, or auto loans. The higher your credit score the better your chances of qualifying for low-interest rates. Employers also check credit reports as part of the hiring process and utility companies run credit checks before providing services. Getting a credit card can help build good credit history, but be sure to apply for one within your credit score’s range. Being denied can hurt your credit.
Start an Emergency Fund
The Federal Reserve Board conducted a survey which found that 39% of Americans would either not be able to cover a $400 emergency or would need to borrow or sell something to do so. Aim to sock away at least 10% of your salary every month to take care of unexpected expenses and to avoid racking up major credit card debt.
Start Working on Eliminating Student Loan Debt
Student loans can leave you thousands of dollars in debt after college. Paying them off should be one of your first priorities once you start receiving a steady income.
Start Retirement Contributions
You’re probably paying off your student loans but it’s not too early to start working on building a nest egg for retirement. Consider making contributions to a 401k or Individual Retirement Account (IRA). Take advantage of any employer match programs as well. The earlier you start, the sooner compound interest helps your money grow.
Acquire Your Own Health Insurance
From age 26 you won’t be able to remain on your parents’ insurance policy. Start the search now to avoid lapses in coverage.
Retirement Goals: Age 30
Save for Major Expenses
Now that you’re a bit more settled, you may be considering some major life changes like marriage, kids, or purchasing a home in the future. Open separate savings accounts to put away some money so that when your dream wedding becomes a reality or you need a down payment for your first home, you’re well prepared. Evaluate your budget and contribute what you can comfortably afford.
Save Six Months' Worth of Income
Using your current income and expenses as a guideline, continue to grow your emergency fund by putting away up to six months' worth of income.
Increase Contributions to Retirement
With student loans hopefully under control, it’s time to contribute a bit more towards your retirement fund. Try allocating at least 15% of your salary towards this goal.
Acquire Life Insurance
If you have any dependents, it is particularly important to purchase life insurance. In the event of death, the beneficiary receives some financial support.
Draw Up a Will
As you start accumulating assets, you’re going to need a will to ensure that everything is distributed according to your wishes. Reach out to an estate planner for guidance or use the more economically friendly option of an online will service.
Retirement Goals: Age 40
Get Term Life Insurance
While life insurance takes care of your loved ones should you suddenly pass, term life insurance is specifically earmarked to provide for your family over an extended timeframe. The proceeds can also help settle any outstanding affairs left behind like funeral arrangements, bills, or mortgage payments. Coverage ends when the term length expires.
Work On Eliminating Consumer Debt
Focus your efforts on reducing debt as much as possible like credit card balances and car notes. You will most likely still have mortgage payments but at least this frees up some of your hard-earned money to be used more effectively or saved.
Aim to Have At Least Twice Your Annual Income Saved
Ideally, you should try to have at least twice your annual income saved for retirement at this point.
Establish a College Fund for Your Kids
If you have kids, don’t wait until they’re accepted into their college of choice to start planning. Set up a 529 plan to help save for their education. These tax-free plans allow you to set aside money for college tuition, fees, room and board, computers, and other equipment. Another plus—other people like grandparents, godparents, aunts, and uncles can contribute as well.
Look Into Investing
Continue building your assets by creating an investment portfolio. This will not only keep you comfortable in your advanced years but provide for your heirs.
Retirement Goals: Age 50
Increase Mortgage Payments
If you’ve stashed away a good amount of savings and eliminated or significantly reduced consumer debt, put some of your extra cash towards your mortgage payments.
Keep Credit Card Debt Under Control
Pay off balances in full to save money on interest, keep your credit score high, and free up credit for other purchases.
Consider Long Term Care Insurance
In case of a chronic medical condition that requires constant care, long term care insurance would help cover the costs that health insurance will not, like the services of a caretaker.
Get Professional Advice
Consult a financial advisor to review what you have accomplished thus far and give some expert advice on your retirement savings and investment strategies.
Retirement Goals: Age 60+
Pay Off the Mortgage
Take care of any outstanding payments left on your mortgage. The last thing you need is to delay retirement to continue paying off your home.
Sell Unnecessary Assets
Now would be the time to sell any assets that might not be in use, like a vacation home. Downsizing your home after the kids have moved out could also bring in some extra cash and simplify your life.
Continue Receiving Professional Advice
Keep on working with a financial planner to ensure that your money is being put to good use and you’re in the best possible position to retire.
Review Plans for Your Estate
A lot may have changed since you first had a will drawn up, acquired life insurance, and established trusts. Revise your plans so that your wishes for distribution are accurately reflected.
Start researching well in advance of planning retirement and you should be able to live out your golden years comfortably. But don’t panic if you’ve already missed some of these retirement milestones. Just assess where you are in life, set your financial goals, and plan accordingly.