Your age often dictates your retirement saving priorities. In your 20s and 30s, you need to get some money into a retirement account so that it can start growing on your behalf. Once you have accumulated a significant nest egg, it becomes increasingly important to protect what you’ve got. And after you retire, you need to sensibly draw down your assets so that your nest egg lasts the rest of your life. Here are some strategies to give your retirement finances a boost at each stage of your life.
20s. People in their 20s are in the best position of their lives to prepare for retirement because even a small amount of savings will have decades to compound. People under age 25 have a median IRA balance of just $3,708, according to an Employee Benefit Research Institute analysis of 25.8 million IRA accounts containing $2.46 trillion. Those in their later 20s have accumulated a median of $5,000. The average IRA balance is $13,103 among early 20-somethings and $12,537 for people in their late 20s. “The best thing to do when you get your first job is to put money in the 401(k) or an IRA, even if it’s just a little bit,” says Ann Terranova, a certified financial planner for Union Financial Partners in San Francisco. “It sets up a habit of saving that someone is going to have the rest of their life.”
30s. While you may have a bigger income in your 30s, you might also have large new expenses such as children and a house that will need to be factored into your savings plan. “Life gets a little bit more complicated. Your goals are competing for your resources, and you need to not lose sight of the long-term,” Terranova says. “If you started that savings habit in your 20s, you have an account that is starting to build value, and you really just want to continue on that path.” Investors have saved a median of $7,661 by their early 30s, but that jumps to $12,325 among people between ages 35 and 39, EBRI found. Thirty-something investors have an average of $20,456 in their early 30s and $33,784 in their late 30s.
40s. Beginning to make more specific retirement plans can help keep you motivated to save in your 40s. “If you start to think about what your retirement is going to look like at 40 or 45, you can make a lot more changes depending on the amount of time you have to do it in,” Terranova says. “If you wait too long, you are really compressing the time you have to make it happen.” The median IRA balance is $17,745 for people between ages 40 and 44, while those in their late 40s have a median of $24,264 saved for retirement. The average IRA balance is $49,948 in the early 40s and $68,683 between ages 45 and 49.
50s. Your 50s is a great time to become a super saver. People ages 50 and older become eligible to make catch-up contributions worth an extra $6,000 to 401(k)s and an additional $1,000 to IRAs. The median balance of all IRAs is $31,692 in the early 50s and $41,149 in the late 50s, EBRI found. The average balance is $91,976 between ages 50 and 54 and $122,957 among people ages 55 to 59. If you’ve managed to accumulate a significant retirement account balance, you may want to shift some of it to more conservative investments to avoid significant losses in the years leading up to retirement. “Your ability to handle risk is going to diminish as you get older and as you get close to that retirement time frame,” says Craig Ritter, a certified financial planner for Continuum Wealth Management in Scottsdale, Arizona. “Obviously as you get older you are dialing back the risk a little bit, but the reality is in retirement you’re going to need to use your portfolio to support your standard of living for likely the same number of years you were working, and there still needs to be some allowance for growth in the portfolio.”
60s. Your 60s is an incredibly important decade for retirement planning because it’s often your final chance to tuck money into retirement accounts before you retire. You also need to decide when you are financially ready to walk away from your job. “Maybe you start looking at opportunities to do some consulting with your vast network and have more of a phased retirement,” says Audry Batiste, a certified financial planner for Precise Financial Planning in Las Vegas. Those approaching traditional retirement age have a median of $55,807 in their early 60s and $75,277 in their late 60s. The average IRA account balance is $165,139 for people ages 60 to 64 and $212,812 among investors ages 65 to 69, EBRI found. You also become eligible for Medicare health insurance at age 65 and need to decide the ideal age to sign up for Social security between ages 62 and 70.
70s. The median IRA balance remains $75,627 among people in their 70s, likely since they have stopped making new contributions and started taking withdrawals but continue to enjoy investment growth. The average account balance is $219,790 at age 70 or older. “You’ve been accumulating for so long that it can be kind of a difficult transition for some people to take money out of the portfolio,” Ritter says. People age 70 ½ and older are no longer eligible to claim a tax deduction on traditional IRA contributions, and annual distributions from traditional IRAs are required after age 70 ½.
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