Road to Retirement 101: What to Do in Your 20s, 30s, and 40s

January 2, 2013

In Your 20’s: Get Started!

As a 20-something, your focus is usually on figuring out what you want to do with your life and finding your first job.  Retirement is probably one of the last things on your mind – pushed to the back by things like paying rent, student loans, and a multitude of other bills that you now have to consider as an adult.  After all that, there probably isn’t a lot leftover.

But now is the time to get started saving, even if it is a small amount.

This article in the Wall Street Journal  discusses the impact that starting early can make – if you start saving at age 25, you will end up with a much larger nest egg upon retirement than someone who contributes the same amount but starts at age 45 instead.  The power of compounding interest and investment income cannot be overlooked.

Some key things to keep in mind as a 20-something:

  • Participate in your retirement plan at work (especially if your employer offers a matching contribution). It is easy to sign up and the money will come out of your paycheck on a pre-tax basis, allowing you to save instead of spend.
  • Pay yourself first – decide on an amount of money to put aside each month and then set up an automatic transfer to savings so that you don’t have the chance to spend the money.
  • Build an emergency fund – try to save at least 3 months’ worth of expenses so that you can deal with unexpected expenses without having to dip into your retirement funds.

In Your 30’s: Continue Building Your Foundation 

As a 30-something, you have most likely established yourself in your chosen career path and have increased your earning power.  Now is a great time to increase your retirement savings.  If you get a raise or a bonus, devote all (or a portion) of it to your retirement savings.

Think about it – if you have been living without that money so far, then you won’t miss it when you devote it to your retirement plan.  Now is a good time to really start thinking about what sort of lifestyle you will want to have in retirement so you can adjust your savings goals accordingly.

CNNMoney offers  a tool to help you understand where you currently stand with your plan and what adjustments might need to be made.

Keep building your emergency fund as well.  Lastly, try to pay down debt that you may have accrued (car loans, credit cards, etc.)

In Your 40’s:  Refine Your Plan and Prioritize Your Retirement Savings 

Now is a good time to further refine the plan you made in your 30’s – really think about how much money you are going to need in retirement and try to think about what age you will be when you retire.

If you haven’t been saving enough to meet your goals, then you need to ramp up your savings drastically.  You still have time, but you are late to the game.

If you did start early, then continue to follow your plan. Consider maxing out your retirement contributions each year up to the IRS limits.  Protect your loved ones by making sure that you have appropriate levels of life and other insurance, update your beneficiaries, and create (or update) your will, power of attorney, and living will.

Stay on track with your plan and you will have a happy and prosperous retirement.

This post was written by Kimberly Gardner from Colorado PERA.

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