Anticipating your future retirement needs may feel overwhelming. Many factors may make retirement seem more challenging than ever before. Traditional pension plans have all but disappeared, and many remaining plans struggle with inadequate funding. Social Security reserves are projected to run dry in the relatively near future. Additionally, as life expectancy increases, many retirees face the possibility of outliving their assets.
Fortunately, a successful retirement is still achievable with proper preparation. Regardless of your stage of life, you and your financial advisor can develop an effective plan to set you on the path towards your wealth creation and distribution goals. Understanding your current financial situation is the first step in preparing for the future.
In your twenties. Many of us experience financial independence for the first time in our twenties. While retirement may be a distant thought at this age, creating good habits now can meaningfully affect how and when you are able to retire.
As you begin your career, consider all compensation benefits but be selective about what you need. For example, paying for life insurance is often unnecessary unless you have dependents and may prevent you from maximizing other benefits, such as retirement savings programs. Employer-sponsored retirement plans allow even the smallest contributions to accumulate quickly, and many companies offer matching and other incentive programs to boost savings. If you do not have access to a retirement plan through your employer, consider opening a tax-advantaged Individual Retirement Account (IRA) to save for retirement.
Finally, find ways to establish and build credit, such as opening a credit card and paying off the balance monthly or taking out a car loan. While you may be hesitant to take on debt, having no credit can be troublesome as financial obligations become more complex.
In your thirties. Your earnings potential often increases significantly in your thirties as you advance in your career. If you already contribute regularly to your retirement account, consider stepping up your contribution rate to benefit from the power of compounding. As new employment opportunities become available, opening an IRA allows you to consolidate and control investments held in previous employer-sponsored retirement accounts.
If you are starting a family, consider establishing college savings plans for your children. College is often a significant expense that can impact when you are able to retire. Work with your financial advisor to determine the most efficient way to allocate savings.
As you think about the wealth you are building and how you want to use it, consider creating a will and an estate plan to provide for future generations. If you own a family-run business, developing a succession plan now may be beneficial to ensuring continuity in the future.
In your forties. Covering educational expenses may become a top priority in your forties as your children make decisions about their own futures. Learn about your options to reduce out-of-pocket expenses, such as grants and scholarships that do not need to be repaid.
With the help of your financial advisor, formalize a retirement savings plan and establish specific milestones to keep you on track. Think about what a successful retirement looks like and how your wealth can support this vision for the future.
In your fifties. As retirement becomes a more imminent goal in your fifties, consider your options for exiting the workplace. Depending on the timeline you have created, you may need to begin saving more aggressively. If you are already maximizing your retirement plan contributions, you may wish to take advantage of catch-up contributions, which allow you to exceed the standard contribution limit.
In your sixties. As retirement funds become accessible without penalty, many people begin to transition into retirement in their sixties. Continue to maximize retirement savings contributions and talk to your financial advisor about distribution options in consideration of your current cash flow needs, potential tax implications and your ability to maintain or grow the balance of your savings.
Start thinking about your long-term health care needs and whether purchasing insurance may be advantageous to offset unexpected or potentially devastating expenses. Based on your other sources of income, determine the optimal time to start taking Social Security distributions, as the benefit amount decreases the earlier you elect to receive it.
Begin to include your children in your estate and wealth transfer plans and discuss your expectations for how they should protect your wealth and the legacy you hope to create.
In your seventies and beyond. By now you may be comfortably in retirement. Begin taking required minimum distributions (RMDs) from your retirement savings accounts, and work with your financial advisor to ensure your asset allocation is consistent with your lifestyle needs and wealth transfer goals. Now is the time to enjoy life, focus on the causes that are important to you, and determine what you want your legacy to be.
For many individuals and families who work hard to create and preserve wealth, a successful retirement means more than meeting day-to-day living expenses. This second chapter of life is also about establishing a family legacy and providing for future generations. In working with clients, we find that families who are successful at transitioning wealth typically integrate future generations in planning decisions, create a healthy family wealth culture, and develop the rising generation through education and open discussion.
The path to retirement is long and unpredictable. Working with a trusted financial advisor and including loved ones in decisions along the way can help you realize the successful future you envision for your family.