If I Knew Then What I Know Now (Sage Money Tips for Each Decade from My Wiser Self)

As I look back on my life, I wish I’d had the following financial advice for each decade of my life. Granted, I did ok, but I would have been more intentional about my money if I knew then what I know now. So I guess you can call this a letter from your future giving you sound money management advice to take now, no matter what decade you’re currently living in.

 

Granted, your career and lifestyle look drastically different when you’re in your 20’s compared to when you’re in your 70’s and your financial focus and planning in each decade should follow suit.

 

So let me help you decipher some of the opportunities and risks each decade offers you financially, so you can live each decade intentionally.

 

Planning for your 20’s:

1. Invest in Yourself – Take the time to grow your human capital, life experiences and knowledge. It doesn’t get easier to invest in yourself later in life. So be bold and take risks! (This pertains to your investments, too.)
2. Develop your Intentional Money Spending Plan (budget) – Figure out how much money you have coming in and how much is going out. It’s key to keep track and you can start with a simple 50/30/20 budgeting guideline. 
3. Build Positive Money Practices – Start by saving and put money into your employer’s 401(k) or set up your own IRA/Roth IRA. Even if you can put a few hundred dollars away, work on developing and automating your savings. If you contribute just $25/week starting at age 25 to your Roth IRA, and continue to age 65, you could have a nest egg of  $132,600 (assuming 8.5% return which is achievable investing in the S&P 500 Index). Of course, the more you contribute, the more it grows. 
4. Pay off High-Interest Debt – Focus most heavily on paying off the debt with the highest interest rate. Credit cards over 10% and student loans over 7%. You can use the “avalanche” or “snowball” method of paying down debt.
5. Get Renter’s Insurance – It will pay to replace your stuff if something happens (fire, water damage in your apartment) and it often covers things like theft and the cost for you to stay somewhere else if your apartment is temporarily out of commission. 

 

Rule of Thumb for your 20’s: 

1. By the end of your 20’s, have an emergency savings account that holds three to six months of your living expenses. 
2. Your retirement savings goal is an amount one to three times your starting salary. A dollar in your 20’s can be worth a lot more than a dollar invested later on thanks to the magic of compound returns.

 

    OK, I know it sounds like a lot to save one to three times your starting salary, but start saving something and make it automatic. That’s the key, because then you don’t miss it in your checking account. I know how “far away” retirement seems when you’re twenty-something. But, believe it or not, forty years flies by with all the life events you’ll get to experience! So set yourself up for success with your intentional savings.

 

Planning for your 30’s:

1. Build Your Financial Foundation – Finish paying off your high-interest debt and build your emergency fund.
2. Get on Track for Retirement – Make sure you’re saving enough to be fully on track for your dream retirement. It’s ok to take risk with your retirement investments as you have plenty of time to let it grow.
3. Get Ready for Home Ownership – First, make sure buying is the best money move for you. Then start saving for that 10% to 20% down payment and have enough set aside for closing costs, too. Once you’ve bought your dream home, set aside 1% of your home’s value per month for maintenance.
4. Get Proper Insurance Coverage – Review your health care insurance, car insurance, property and casualty for your home, and life insurance. 

 

Rule of Thumb for your 30’s:

1. By your late 30’s it’s ideal to be saving from 10% to 15% of your income each year for your future. Remember you have time to take risk and see it grow, thanks to the rule of compounding.
2. By the end of your 30’s your goal is to have three to five times your current salary saved.

 

I remember my 30’s! I thought I was invincible. My career was blossoming, I was making “real” money and I loved using my education and gaining more experience. It was also a time when “lifestyle creep” entered my world. The bigger house, newer car, and toys! It also sucked my paycheck dry. Thank goodness I had my 401(k) contributions automatically deducted from my paycheck and I increased my deductions annually when I got a raise. 

 

So don’t buy things you don’t need to impress people you don’t like and take on debt you can’t afford. Immediate gratification is soooo fleeting! You will be grateful for increasing your retirement savings thirty years from now.

 

Planning for your 40’s:

1. Zero in on Retirement Savings – In your 40’s you’ll likely hit your peak earning years. This is the perfect time to build your wealth and make sure your investments are properly aligned with your future goals by continuing to invest in growth assets.
2. Put Cost Savings to Use – Review your overall budget, spending and expenses. Are you watching all those entertainment subscriptions or paying too much for your phone bill? Evaluate it all to bring your “lifestyle creep” into alignment with your future goals.
3. Protect Your #1 Most Valuable Asset – That’s you and your earning power. Review your life and disability insurance and make sure you’re adequately insured, especially if you’re the primary earner.
4. Plan for Your Kid’s Education – Are you saving in a 529 College Fund for college expenses? Grandparents can contribute, too. If your child doesn’t use the entire balance for college, it can be rolled over to a Roth IRA for them. 
5. Discuss Money with Your Parents – As they enter their retirement, talk to them about their money plans like do they have their house paid off? Do they have long term care insurance? Will they need your help?

 

Rule of Thumb for your 40’s:

1. Focus on increasing your savings and investing heavily in long-term growth assets like equities and other growth assets.
2. By the end of your 40’s plan on having five to eight times your current salary saved.

 

I was at the peak of my earning in my 40’s. However, I got burned out on my job. Lesson to learn – take care of yourself physically and mentally. Re-evaluate your career and do something that brings you joy and income. 

 

Planning for your 50’s:

1. Step on the Gas in Your Career – Ambitious, mature women are seen as reliable leaders, so there’s no reason for you to slow down just yet.
2. Take Advantage of Catch-Up Contributions – This is when you can contribute more into your 401(k) and IRA. 
3. Know Your Number – How much will you need for retirement income and are you on track to get there? Working with a Financial Coach will help you make sure you’re on track for your dream retirement.
4. Maintain or Increase Your Cost Savings – Maybe the kids are out of the house and you can invest what you used to spend on their expenses. You might also think about downsizing, depending on your goals and lifestyle.
5. Definitely Consider Long-Term Care Insurance – This is the best time to plan for your longevity as it is one of the biggest risks you’ll face in retirement. Long-term care insurance and funding strategies are best purchased and reviewed in your 50’s. If you’re single, you want to make sure you have a plan for quality of life in your retirement.

 

Rule of Thumb for your 50’s:

1. As you consider if you’re saving enough, a good rule of thumb is to have saved 25 times what you plan to spend each year in retirement. So, if you want to spend $100,000 a year from your savings in retirement, you should retire with $2.5million. This figure doesn’t take into consideration what you might receive from Social Security or any pensions, which will lower your retirement savings total. You can also adjust this number if you choose to work longer, all considerations you have plenty of time yet to decide.
2. By the end of your 50’s you will want to have eight to twelve times your current salary saved for retirement.

 

It’s never too late to start a new career. One of the most significant advantages of changing careers in your 50’s is the wealth of experience you’ve garnered. So make sure you’re doing what you enjoy! When I turned 50 I transitioned into a career as a Financial Advisor. At 60 I pivoted to Financial Coaching. 

 

Planning for your 60’s:

1. Manage Your Retirement Accounts – Now’s the time to work with a Financial Coach who can help you figure out the best way to consolidate your retirement accounts (or not) to get them ready for efficient withdrawals in retirement. The average career person has eight to ten retirement accounts when they retire. That’s cumbersome to keep track of.
2. Turn Your Savings into Retirement Income – Retirement is the time to turn your savings into income. This requires a lot of planning because you need to make this money last the rest of your life – and no one knows how long that will be. You’ll also want to take into consideration health care costs, long-term care and inflation to the sustainability of your retirement income. This is when you decide when to take Social Security and when you plan on retiring. 
3. Envision Your Life in Retirement – Consider if you’ll stop working completely, or phase out of your career. Do you want to travel, volunteer, or plan more time with family? Take time to carefully consider your social relationships and how they may change after leaving your workplace. Staying engaged during retirement is critical. For those who might become isolated, it’s crucial you have a plan on how you’ll find meaning, happiness and value in retirement. And don’t forget about your health! Workouts anyone?
4. Plan Your Legacy – Do you have all the estate planning tools like your will, trust, health care directive and financial power of attorney in place? Do you have a plan for what you want your money to do when you’re done with it? Will it go to family? To that nonprofit you’ve been supporting for years? Do a beneficiary review, especially as assets start to get turned into retirement income. And review your insurance, do you still need it, or do you need more?

 

A Rule of Thumb for your 60’s:

1. Familiarize yourself and understand the 4% safe withdrawal rate for retirement spending. 
2. By the end of your 60’s, you should have saved ten to twenty times your current salary, depending on your spending goals and other income sources.

 

Even the best retirement plans can have a hiccup like a divorce or death of a spouse. After 40 years of marriage, I was divorced and living on my own. It gave me freedom to live the retirement I desired, but not the income I had planned on. So it’s great to have contingency plans and be flexible. Maybe delay retirement, or phase into it so you can continue earning some income and delay taking your Social Security until age 70. 

 

Planning for your 70’s and Beyond:

1. Enjoy Life – You’ve worked hard your whole life and now you get to enjoy your retirement. Having a sound financial plan that shows what you can spend and how long it will last can give you peace of mind to live the lifestyle you want.
2. Make Your Money Last a Lifetime – A big part of planning for retirement while working is about saving, investing and growing your wealth. Once you get into retirement, you will want to monitor how your plan is doing and make any adjustments as necessary. Your situation, the markets, and your goals will change as your lifestyle changes. Don’t forget to plan and manage your required minimum distributions (RMDs) from IRAs and 401(k)s. Some great charitable giving strategies, like qualified charitable distributions (QCDs), are available to retirees. QCDs allow you to take a distribution from an IRA, send it directly to a charity, help offset your RMD requirements for the year and have it not treated as part of your taxable income. 
3. Complete Your Legacy and Charitable Planning – Legacy planning isn’t just about taxes and estate planning – it’s more about meaning and impact. It can mean passing on security to family members, giving back your time to charities, or funding a worthwhile and meaningful initiative you care deeply about. Giving back in retirement will keep you more engaged and reduce the likelihood of becoming isolated and suffering from depression.

 

A Rule of Thumb for your 70’s and Beyond:

1. Track Your Retirement Portfolio – You may be under-estimating your life expectancy. For instance, for those who are alive at age 65, there’s a greater than 50% chance for a couple that one individual will live to 90 and almost a 25% chance one will live to 95. Longevity isn’t a risk – it’s a gift for those who plan, so plan for the end point, not the middle.
2. Track Your Withdrawal Rate – If you want your money to last, your withdrawal rate has to be reasonable. If it gets up to 10% of your portfolio balance per year, you have a risk of running out of money. Try to keep it closer to 4% to 5% of your total wealth that you’re spending per year.
3. Embrace Retirement – Have fun and live the retirement you planned for!

 

Your future self will thank you for reading and implementing these sage money tips for a secure retirement. This is how you plan and live the retirement of your dreams!