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Does Your Retirement Strategy Fit Your Life Stage?
September 28, 2016 | Matt Alderton; excerpted from Thrivent magazine
As your life changes, so should your retirement planning
Maybe you're just starting to work, or maybe you've been at a job for years. You could be on your own or have a family to support.
No matter what the circumstances may be, you need a retirement strategy that's right for you.
Think of retirement planning as having four life stages: the beginning phase, the building-up phase, the transitional phase and the spending phase.
Here's what to consider at each phase.
The 4 life stages of retirement planning
Beginning phase: Starting right in your 20sYour 20s are the perfect time to begin to establish good financial habits.
- Avoid debt: You now have a paycheck and a lot of ways to spend it. But, to have a successful retirement, you need to get comfortable living below your means, says Michelle Clary, a Thrivent Financial representative in Kennewick, Washington. "Ideally, you want to go into retirement without debt," Clary says.
- Save for the future: A good savings goal is 10% of your income, says Joe Reilly, a Thrivent Financial representative in Worthington, Ohio.
- Maximize growth: Put as much into a retirement account as your employer will match. In addition, maximize Roth IRA contributions."Younger folks won't withdraw that money for 30 or 40 years, so they have the ability to let it really grow," Clary says.
Building-up phase: Maximizing in your 30s & 40sYour 30s and 40s are about maximizing retirement savings in the face of dozens of financial obligations.
- Stay the course: You're probably making more money, but you could be spending more on a home or family. Put money aside for retirement anyway.
- Prioritize your financial goals. "It isn't a wise decision to put all your effort into getting your kids to college at the expense of your own retirement," Reilly says. "There's only one way to retire: You have to save for it."
- Protect investments: In the event that something happens to you or your spouse, having life insurance will protect your retirement assets, so your family doesn't have to use them for living expenses.
In your 50s and 60s, retirement is within reach. It's time to put your plans into
Transitional phase: Putting plans into action in
your 50s & 60s
- Figure out your needs: Meet with your financial representative to determine how much income you need in retirement and how much income your savings provide. Most people should have enough savings to replace at least 70% of the income they earn while working. If you're falling short, you might need to push back your retirement.You also may want to consult with your tax advisor about putting more money into your retirement plan.
- Rebalance your portfolio: The closer you get to retirement, the more conservative your investments should be, says Reilly.
The savings you plan to use at the beginning of retirement should be invested more conservatively by following safe investment strategies.
But long-term savings – savings you don't plan to use until later in retirement – should remain aggressively invested through higher-risk investment strategies.
Spending phase: Living in retirementAs you begin to spend in retirement:
These withdrawals may be taxed, but you can take steps with your financial representative and tax advisor to minimize the amount you'll pay.
So, whether you're 25, 45 or 65, it's important to plan for your future and reevaluate your retirement plan on an annual basis.
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