In what seems like a blink of an eye, 20 turns into 30, and then 40 lurks around the corner. It?s at that time that people begin to take things in life a little more seriously, including retirement. Although you still have two decades to put money away, the time to start taking action is now. Make retirement a priority.
For a period of time during adulthood, money goes toward paying bills, buying a house, purchasing a car, making home repairs, and so on. The one place it?s not going is into a savings account. Especially for parents preparing to send their kids to college, which usually happens around the age of 40, there never seems to be extra money to put aside. Then if they have a job that doesn?t pay well, a comfortable retirement begins to look less and less likely.
From age 40 to 50, most people earn their highest salary ever. However, instead of focusing on retirement, the majority of them spend on other things. Instead, they should switch their attention to putting money aside, so they can retire with financial stability.
One option is to pay down a mortgage or pay it off in its entirety. Shortly after having children, they should also start putting money for their college education. At the same time, they should sock away as much money as possible. Even a small amount is better than none at all. By waiting to do these things, they?ll likely need to reduce the amount they contribute to retirement.
Getting and Staying on Track
If you want to stay on track in meeting your retirement goals, you?ll need to carefully monitor your progress. This is especially true considering all the financial demands during the 40s. One way to do this is by utilizing an accurate and detailed retirement calculator designed specifically for this purpose.
If you discover after reviewing your situation that your retirement savings account isn?t close to where it needs to be, you?ll want to formulate a plan to help you catch up. Even if you?ve been able to build a nice ?eggs nest,? it?s still critical that you continue monitoring. If after 20 years or more you?re satisfied with your retirement savings, you can go on autopilot.
Some people are fortunate enough to have funded their plans extremely well. As a result, there?s no need for them to continue making contributions. Take a 45-year-old individual who wants to retire with $3 million at the age of 65 as an example. If that person already put $650,000 aside and can earn 8 percent annually on average, the goal is reachable. In that case, that person can stop contributing to the plan if wanted.
The fact is that most people haven?t saved $650,000 by the age of 45. If you?re one of them, you need to create a viable plan. Especially if you do not see an increase in income in the same way as when you were 20 or 30, you?ll need to find ways to modify your spending in an effort to catch up.
A perfect example, when sending your son or daughter off to college, you could take the opportunity to downsize your home. As you know, your mortgage is the most significant expense you have. That alone can have a substantial impact on your budget ? in a good way. You can set some of the saved money aside for retirement.
Another example, if you have three car payments, but there are only two drivers left in the house, decide which one to eliminate. Again, the money you would normally spend on car payments can go directly into a retirement savings account. Something else to think about is your lifestyle. You want to live comfortably, just not lavishly. That will go a long way in building a better retirement portfolio.
What it comes down to is looking at all the different ways you can spend less now so that you can retire with a stronger portfolio.
More than likely, your asset allocation becomes more conservative by the time you reach the age of 40. If you hire an expert to establish an allocation on your behalf but choose not to use it, you should still use the model for your retirement portfolio. Using a target date allocation, your portfolio might consist of 85 percent stocks and 15 percent bonds.
There?s an excellent chance that from age 20 to 30, nothing major changed since you still have many years left before retiring. However, you want to use this time to your advantage by investing more aggressively. Considering that you?ve seen declines in the financial market as an adult, this is especially important. In other words, you need to use the next 20 years to catch up. Ultimately, the closer you get to retirement age, the more your asset allocation should change.
For you to manage your asset allocation across more than one account, it?s essential to view your portfolio as a single bucket of investments. That way, you can balance them better. There are several free tools available that can help with this. In effect, you can use these tools to become more educated as to how to make your investments work as a team.
Without question, the 40s are the most crucial decade when it comes to planning for retirement. During this era, you can either catch up for the less aggressive savings from the past, or you can modify the way you save to help you achieve your retirement goal. Regardless, as you reach age 40, it?s important to know that you still have ample time to prepare for the golden years. Staying on track will allow you to have a financially secure and comfortable retirement.