Do you remember the first piece of advice you received regarding money? Chances are you don’t remember the words explicitly but it probably impacted you in some way and likely continues to influence you today. When we are young, we internalize the words of the older mentors in our lives. I love this idea of generations influencing the next generation to be better stewards of their money. One of the largest challenges I see when I work with individuals is that their thought process around money is centered around a lesson they learned when they were young. When I meet the individuals years later as they approach retirement age, that single seed has spent years growing and sometimes we enjoy the fruits it has produced but sometimes we have to hack away at the vines that have become intertwined with their money and its purpose.
When I meet parents and grandparents to discuss their own finances, they all have one common goal; to leave their children and grandchildren better off and create a legacy of financial independence. Modeling fiscal responsibility is the greatest way to teach your children and grandchildren to be responsible with their spending and investing. They will turn to you when they need advice and that seed you plant will influence them for years to come. That’s a lot of pressure on a single piece of advice! The thing I’ve come to realize though is that the path to financial independence cannot be started or finished with a single piece of advice. It truly is a journey with multiple touchpoints along the way. Here is a decade-by-decade guide to retirement planning. Use it to help you know what you or your children should be thinking about when it comes to finances.
Birth through 20
If you want to make a big impression on your children and set them up well for future success. Use the first two decades of their lives teaching them to despise debt. From the time they sell their first glass of lemonade, teach them the importance of saving for what they want and not spending money just because they have it. This lesson will translate well when they move from the lemonade stand to their first job at the pizza shop or grocery store.
20’s
Start a Roth IRA! If you start now you are ahead of 99% of the population. Get used to making regular contributions and budgeting for those contributions. If you start early enough, even a nominal amount, contributed consistently will make a huge difference. After graduation from technical school or college, take time to understand the benefits packages offered by your job. Take full advantage of these benefits the first day you are eligible. 401ks and HSAs sound like alphabet soup when you are young and cashing your first real professional paycheck. But taking the time to understand their impact on your path towards financial independence is invaluable. These are years often requiring a little nudging from a well-meaning parent or grandparent. Your children will not be inclined to think about the end of their career when they are just starting their career.
25-40
This is where the heavy lifting happens. Use these 15 years to get out of debt (except for your mortgage), fully fund your emergency fund, and continue increasing contributions to your Roth IRA and employer-sponsored retirement plans. This is also a great time to start planning for your kids’ education. Solidify your good money habits now and you will be grateful to yourself later.
40-50
This is where most really start to hit their stride. This decade of life provides a lot of clarity in your financial journey and all of the things you have set in place really start to show results. This is the time you want to pay off your mortgage completely, finish funding your kids’ college plans, and then really turn your attention to dreaming about what you want your retirement to look like. Your house is paid off, your financial house is in order, now it’s time to think big!
60s
Here’s where the plan moves to execution. It’s time to start putting the pieces of the puzzle together; social security, pensions, cash, and investments. With all of these in place, you can set a date for when you will reach financial independence. And with that in place, you can start to know what life will look like during retirement. Know when you reach financial independence. Know the life you want in retirement. This is when most people become most interested in planning. This is a time to start moving investments to fixed income because the money has less time to recover. Ideally, these conversations and decisions should start 5 years prior to your intended retirement date. This is where all of the planning and discipline bear fruit, it is a time to celebrate and enjoy! Although it’s a happy thing, retirement can come with a lot of apprehension and unease. It’s a big change in lifestyle so make sure you have someone to confide in during the transition.
70s
The same way you hit your planning and saving stride in your 40s, you begin to hit your retirement stride in your 70s. At this point, you’ve had a few years to see how the plan unfolds. It’s also a great time to start thinking about legacy gifting and meeting with your financial advisor to set up gifts for the people and causes who are important to you.
This list is not comprehensive and it would be nearly impossible to create an exhaustive list of all of the variables that could go into planning for financial independence. While this is a good guide, the thing to take away from all of this is that you don’t have to (nor should you) do any of this alone. No matter where you fall on this decades list, we’d be honored to help you review your financial plan!
Adam Ludwig, CEO / Wealth Advisor