Act Your Age: A Decade-by-Decade Guide to Saving

woman sitting on edge staring at water

Do you have any regrets about how you’ve prepared for your retirement so far? Noooo, not you, right?

But maybe you’ve heard from friends that they’d be in better shape if only they had remembered to set up that 401k their 20s…or continued to save after the baby was born…or hadn’t pulled out of the market in 2008…or…

Relax. For every regret you (or your, ahem, friends) might feel, there’s an opportunity to boost your retirement savings by avoiding classic mistakes and anticipating age-specific roadblocks.

“It’s inevitable that people have to make adjustments to their plans,” says Jane Bennett Clark, a senior editor with Kiplinger. The trick is knowing what fixes to make, and when.

In your 20s…

At this age, even a little savings is like rocket fuel for your retirement. While studies show that single women in their 20s are earning more (and more than their male counterparts), the reality is that it’s hard for most young people to save energetically for a life that won’t unfold for decades. (We know. We’ve been there.)

The standard to aim for is 10% of your salary. But if you really want to set yourself up, says Clark, “aim for 15% now, because you’re almost certainly going to hit certain roadblocks later in life.” Fifteen percent may sound like a lot, but you can (and should) ease into it—here’s how.

Meaning: It’s likely that your savings will nosedive for a few years if you decide to get your law degree or M.F.A., if you buy a house, if you splurge on a big wedding, or have a child. So frontload your savings while you’re relatively carefree—and you’ll stress less about the health of your nest egg when life takes over in years to come.

Your 20s are also a good time to set up a Roth IRA, Clark notes. The beauty of a Roth is that you put in after-tax money, so it not only grows tax-free, you withdraw it decades from now and won’t owe taxes on your principal or profit. “Starting early means you can really have the benefit of that tax-free growth.”

In your 30s…

It’s time to plan. “It’s too easy to fall into your 30s and 40s without figuring out your overall plan,” says Clark. Then you’re at the risk of life taking over, and slipping behind on your goals.

After all, you typically make some big decisions in your 30s: kids, career changes, investing in a “forever” home or maybe your own business. A plan can help you prioritize, make choices (or negotiate harder for a certain salary level)—so you don’t get off track.

If you don’t have a clear-cut plan that helps you hit savings benchmarks or important goals, meet with a financial planner (and be sure to follow these guidelines, and discuss their fee structure.

If you’re dealing with college savings, says Clark, “chances are you won’t be able to fully fund both college and retirement at the same time, so you’ll have to make choices.

“Since you can’t borrow for your retirement, you’re probably going to have to compromise on college savings.”

One thing that will help protect your plans: an emergency fund of (yes) three to six months of expenses, or an amount that makes sense in your life, which might be more or less. If you have a rainy day fund, you’ll be less likely to raid your 401k or IRA in a crisis.

In your 40s…

It’s time to check your asset allocation, especially if you haven’t given it much thought in, oh, five to 10 years. Unless your retirement money is in a target date fund, which adjusts the allocation of equities and fixed income to be less risky as you get older, your portfolio probably needs a tune-up.

You want to make sure you’re balancing the need for growth (retirement is still a good 20- to 25 years off, for you) with some security. Meaning, if your asset allocation is still pretty aggressive, i.e. weighted more toward stocks or stock mutual funds, you want to make sure you’ve got some hedge (protection) against risk, usually in the form of bonds and cash.

Another common mistake at this age: overcommitting to college bills, says Clark. Two things you can do to prevent filial love from sabotaging fiscal prudence:

1. Be honest with your college-bound or teenage kids about what you can afford, and what sorts of colleges they can apply to. Giving them a reality check will prevent them from being disappointed, and stop you from spending money you don’t have.

2. Avoid the debt trap. The last thing you need going into retirement is a heavier debt load, so don’t tap out your home equity for college tuition!

In your 50s…

As you get older, the likelihood of facing some sort of financial setback only grows. And unfortunately, the older you are, the higher the stakes are. Losing your job when you’re 25 is a bummer; losing it at 55 means you’re looking at an income loss, a dent in your savings, and a hit to your retirement.

Hopefully you’ve been proactive, because frontloading your savings is one of the best ways to tide you over in the event of a financial shock. But if you don’t have that peace of mind, do your best to maintain your retirement contributions, no matter what, says Mary Claire Allvine, an advisor with Brownson, Rhemus & Foxworth in Atlanta.

If you haven’t been able to keep a steady 10% or 15% savings rate, you may have to play catch-up. Fortunately, that’s why there are, literally, catch-up provisions for most retirement accounts for folks 50 and older. Up until age 49 you can only sock away $5,500 in your traditional or Roth IRA (starting in 2013), but it’s $6,500 from age 50 on up.

One idea, if you do need to bear down on savings, is to downsize before you retire, suggests Clark. If you move to a small home, that could save on monthly mortgage or rent payments, plus taxes, heat, utilities, maintenan e. Maybe you can even ditch one of the family cars. “You can save quite a bit by funneling that extra cash into your retirement during the last 10 or 15 years,” says Clark.

In your 50s, it’s also imperative to consolidate all your 401k and rollover accounts—if you haven’t yet. You need to know exactly what your assets are, and where they are, so you can make the most of them.

That’s what it’s about, at any age.

You Might Also Like:
Are You Being Underpaid?
ETFs or Mutual Funds–Which Should You Invest In?
What Kind of Investor Are You?
IRA vs. 401(k) — What’s the Difference?

Join the Discussion