For a NASCAR legend like Jimmie Johnson, a pit stop can spell the difference between first place or being out of the race. After all, getting your tires changed and your gasoline filled in less than 12 seconds is manna from heaven for a NASCAR driver, who knows only too well the meaning of one or two seconds in the outcome of a race.
Retirement savers should take a page out of the racing world’s book and deploy a series of pit stops of their own on the way to their golden years. No, that pit stop won’t take seconds, or even involve lug nuts, but the fundamental structure is the same. Take a break, check your investment performance, top off your portfolio if need be, and get back in the race to a rewarding, post-career lifestyle, checkered flag or no checkered flag.
Use key birthdays as your critical checkpoints, experts say.
[See: 10 ETFs That Pay Sky-High Dividends.]
“Planning for retirement is a multifaceted task and one that would do best if you planned on as many fronts as possible,” says Lisa Curtis, a retirement lifestyle coach at Charter Wellness in White Plains, New York. “Birthdays are good reminders to take stock of where you’re at and how you wish to shape your future.
Birthday-wise, here are the most important ones from a financial planning point of view:
Age 21. On your 21st birthday, or as soon after that date as you begin to earn money, it’s time start saving long-term.
“If you’re working, start investing in a 401(k) plan, ideally with company matching contributions,” Curtis says. “This will allow your money to grow as you mature, and will lay the foundation for more freedom and more choices as you get closer to retirement.”
The earlier you start, the more you’ll save. Assuming an 8 percent annual gain, if a 25-year-old saves $2,000 a year for 40 years, he or she will accumulate $560,000 for retirement. But if you wait until 35, under the same conditions, you’ll only save $245,000. If you start at age 21, your 401(k) savings will grow only larger.
Age 30. On or near your 30th birthday, check in on your savings, says Dan Cunningham, founder of One Day In July, a financial advisory firm based in Burlington, Vermont.
“You have 10 years until age 40,” Cunningham says. “The money you save before age 40 is roughly equal to all you will save for the rest of your life after age 40, in terms of compounding returns. You have one decade left — and age 55 is not the age to realize this reality.”
At this point, release your grip on actively managed mutual funds, Cunningham says.
“Instead, you need to get into lower-cost, more conservative index funds,” he says.
Age 45. On your 45th birthday, you’re firmly in the “sandwich” position, says Valerie Peterson, chief executive officer at Elder Counsel, a legal services firm in Orange County, California.
[See: 11 Tips for the Sandwich Generation: Paying for College and Retirement.]
“At that age, it’s very likely that you have parents who are around age 70 or more and children who are college-aged or even recent graduates,” Peterson says. “Most people put off trust and estate planning indefinitely — often until it’s too late.”
Peterson says that age 45 is a great pit stop to plan for your passing and the passing of your parents (since only 20 percent of people have wills in place at the time of death), so that you and your children are prepared for the legalities and specificities that come with this difficult time.
“Rather than forcing surviving family members to wait through the probate process or question your desires and preferences, take the time to plan these things while you have the time and peace of mind to do so,” she says.
Age 62. By age 62, you should have already shifted the focus from any dependent’s needs to your needs, Curtis says, as from ages 50 to 62 your earnings now need to go toward plowing as much as you can into preparing for retirement.
“Also, at age 62, you first become eligible for Social Security but that doesn’t mean you should take it,” she says. “The longer you can hold out before drawing on your Social Security payout, the better. Retirement savers will see a real jump in their income if they can wait until 70.”
Age 70. This is the true magic birthday, Curtis says.
“You can withdraw from Social Security at the highest rate, and if you want to, put that money it into other, safe, investments so that you have it moving forward,” she says.
Also during that year, at age 70.5 you must, by law, withdraw from your 401(k), Curtis says.
“Celebrate and remind yourself the options you have in front of you now are because you took the time in the past to get here,” she says. “It’s a job well done.”
[Read: 10 Retirement Savings Goals for 2017.]
All birthdays are special — and all retirement pit stops are important. Plan your pit stops around the key birthdays listed above, and make sure your retirement savings plan is all fueled up and ready to go.
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5 Pit Stops for Better Retirement Planning originally appeared on usnews.com
