Planning for Retirement in Four Different Stages of Your Life

Jan 17, 2023 3 min read

Retirement is one of the most critical reasons for financial planning, but it can also be one of the most difficult; it is best to start planning when the goal is decades away, it is hard to know how much to save and there are many savings vehicles you can choose from. Instead of looking at saving for retirement as one massive goal, it may be beneficial to break down your end goal into more achievable stages of retirement planning.

How Much Should I Have Saved?

The first question most people have when planning their retirement savings is “how much is enough?” The answer: it’s hard to say. There are a variety of factors that influence what you should shoot for, and the future is so unknown that it’s hard to know if the goal you set will be enough. The best thing to do is talk to a financial advisor about setting your personal retirement savings goal. In the meantime, keep in mind that the average person is expected to spend 55-80% of their pre-retirement income each year.1

4 Key Retirement Savings Milestones

Saving for retirement is a long process; it’s easy to keep pushing it off because the end goal is so far away. But ignoring important ages in retirement planning won’t help you reach your goals. While it’s never too late to start saving for the future, preparing for your dream retirement is easier when you take the right steps at the right time.

Young Adulthood

Starting young is the best and easiest way to make your retirement dreams a reality. You have two huge advantages when you start planning in your young adulthood.

First, what you’re able to contribute (even if it’s not much) will have lots of time to compound. The money you save early will do some serious work for you because everything you earn is then reinvested to earn even more. For example, say you begin investing $3,000 a year ($250/month) at age 20. At age 65, you would have invested a total of $135,000. If you assume a 6% average annual return, you would have accumulated $638,231. However, if you want until age 45 to begin saving the same amount with the same return, by age 65 you would have invested $60,000 and accumulated $110,357. Even though you would have invested only $75,000 more by starting earlier, you would have accumulated more than half a million dollars more overall.2

The other advantage to starting young is that you have time to reap the rewards of bigger risks. Typically, the closer to retirement someone is, the less comfortable they are with risk because they may not have the time to make up for a significant loss. Starting young gives your investment portfolio time to take advantage of the ups-and-downs of the stock market. You can take some shorter-term losses in pursuit of longer-term gains.
Some tips: Don’t let other financial obligations – like student loans or credit card debt – keep you from saving. Max out your employer match (otherwise you’re leaving free money on the table) and try to increase your contribution by 1% every year until you hit the contribution limit.

Starting a Family

Talk about a time when you have lots of financial obligations – welcome to parenthood! Between housing, groceries, childcare, activity expenses, college savings, vacations, health-care and so much more, monthly budgets can get exceptionally tight when kids are in the picture.

Though it may be tempting, do not cut retirement saving to make ends meet. Not even to save for your children’s college education.

If one parent plans to leave the workforce to care for children, they should try to increase their contributions before and after the time out of the workforce to make up for lost years – or, if you can swing it, have the working spouse contribute more to keep your family on the right track.

You also still have time on your side, as retirement is typically still 20-30 years away. That means you can be a little riskier and can count on compounding gains to help push you along.

Peak Earning Years

The later stages of your career may come with many ups-and-downs. Expenses for children are typically larger (think cars, college and weddings). You may also have to take time off unexpectedly to care for an aging family member or have health challenges yourself. On the flip side, your years of workplace experience mean you likely have a higher salary than ever before.

If your circumstances allow, now is an ideal time to kick your savings into high gear. After age 50, you can take advantage of catch-up contributions. You may also consider meeting with a professional to fine-tune your investment portfolio so it makes the most sense for your goals and timeline.

Nearing Retirement Age

Although its never too late to start saving, hopefully at this point you’ve been saving for a few decades. It’s time to start thinking about protecting your savings by changing to lower-risk investments. You should also meet with a financial advisor to discuss the myriad of new challenges that retirement brings, such as:

  • creating a distribution plan to ensure that your savings last
  • managing your money in a tax-advantaged way
  • preparing for healthcare needs and health insurance
  • keeping up with inflation
  • making plans for your estate
  • taking RMDs (required beginning at age 73)

What to Consider When Retirement Planning

Planning for retirement is no easy task; there are a large number of variables that can impact what you decide to do. And odds are, you’ve never done this before. Don’t put your future at risk – work with a financial advisor to help reach your retirement planning goals. 2 This hypothetical example of mathematical principles does not represent any specific investment and should not be considered financial advice. Investment returns will fluctuate and cannot be guaranteed.

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.