How to Save Throughout Your Life

Financial planning can be a complex topic, and the many of us don’t go through classes at school that teach us how to manage our savings and investments. And, while there’s no set rule that works for every single person 100% of the time, there are some strategic principles you can use to help develop a healthy financial plan.

In Your 20s and 30s: Building the Foundation

In your 20s and 30s, you’ll possibly graduate from college, enter a long-term career, establish a committed relationship and perhaps have kids. With so much changing for you personally, it’s important to start thinking about how your financial habits will sustain your lifestyle over the long term.

Getting Started:

  • Define Your Long-Term Goals: If you don’t have an idea of where you’re going, it’s pretty hard to get there. That’s true with road trips and savings plans. A good starting point is addressing questions like these: “What does retirement mean for me?” and “If we have children, what kind of lives do we envision for them?”  
  • Build an Emergency Fund: Are you one big car repair away from an empty bank account? It’s typically suggested that you set aside 3-to-6 months of living expenses in an emergency fund that you can turn to if large, unexpected expenses crop up.
  • Start Saving Now: Compounding acts to increase your rate of return. And the longer you save, the greater the impact of compounding.

In Your 40s and 50s: The Pre-Retirement Phase

In your 40s and 50s, you’re likely kicking your retirement investing into high gear. You’re also balancing this with getting kids through school. Here are some key guidelines to consider if you’re in this age group:

  • Consider Retirement Spending Habits: As you get closer to retirement, you’ll want to compare your expected retirement income from various sources to your expected needs and develop a plan for meeting your needs. If you’re lagging behind, you’ll want to identify trade-offs you’re willing to make to help ensure a comfortable retirement. For example, maybe you’ll move into your last house during these years, travel less or keep your cars a little bit longer.
  • Build a Cushion: The future is unpredictable and you’ll most likely encounter unexpected expenses no matter how thoroughly you plan. You can build in an extra cushion to help offset the unexpected by assuming you will live longer and your expenses will be higher.

60s and Beyond: Nearing and Living in Retirement

There are a couple of things to help make sure you can continue to live comfortably.

  • Consider Your Withdrawal Rate:  Determine all sources of retirement income, including likely (or actual).  For example, Social Security payments, pension plans and annuities. Compare the total to your anticipated (or actual) expenses. From there, you can determine how much to withdraw from your own retirement accounts. If that rate is not sustainable, you could run out of money.  
  • Consider Any Necessary Lifestyle Changes: If you’re worried that your funds may not last you long enough to make it through retirement, consider working part-time or finding ways to reduce your expenses. Changes like downsizing your home or moving to more affordable areas may make retirement more comfortable for you.

For All Ages

Review Your Allocation Annually:  Regardless of your age or life stage, reviewing your asset allocation is key. Your asset allocation can change from year to year for 2 reasons: (1) your risk tolerance changes and (2) the market performance of your investments shifts your allocation away from your target. Your response to both of these events should be the same: monitor your portfolio diligently and rebalance as necessary to achieve the asset allocation that fits your investing strategy. 



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The analytical tools, examples, and strategies described in this article are for information purposes only and their use does not guarantee a profit. None of the information provided should be considered a recommendation or endorsement of any specific investment, tool or strategy. The choice to use a specific investment tool or strategy should be based solely on your research and evaluation of risks involved, your financial circumstances and investment objectives.

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