Age is more than just a number when it comes to financial planning. Starting early can help give you a leg up on a comfortable retirement. This is particularly important for women because we live longer than men, are more likely to require long-term care services, and take more time out of the work force to care for children and family members. These financial realities make it even more important for us to start saving early, to save more as we earn more, and to plan carefully for those “time-out” periods.
In a Women & Co. study, women cited saving as one of their top money moves when starting out. To get started, take the Women & Co. quiz, Are You Taking the Right Steps Toward a Comfortable Retirement? and review these savvy steps provided by Lisa Caputo, Founder, Chairman and CEO of Women & Co., and Linda Descano, CFA®, President and COO of Women & Co., for investing in your financial future, at any age:
In Your 20s
- Set Financial Goals. The first step to putting together a financial plan is to identify what you want, when you want it, and what it will take to achieve it. Be sure to write down your goals so you have something to refer back to as you plan.
- Live On a Budget. A budget doesn’t have to be onerous and it’s a key component of a solid financial plan. Start by writing down your monthly income, track and total how much you are spending monthly, and determine your debt-repayment obligations (i.e., credit card, student loans). After calculating your monthly expenditures, subtract that from your total monthly income. Allocate the amount you have left over toward savings. If you’re falling short on savings, think creatively about ways to cut spending.
- Make Saving Automatic. Once you’ve determined your target savings amount, consider setting up an automatic transfer from your primary bank account to a dedicated savings account each month. Also, do not miss an opportunity to enroll in your employer’s retirement plan, such as a 401(k) plan (in the United States), and take advantage of matching contributions, if available. Whether you have access to an employer-sponsored plan or not, consider an IRA.
In Your 30s
- Set Up An Emergency Fund. Save and set aside enough cash to cover at least a minimum of 3, and ideally 6, months of living expenses in case of disability, unemployment or an unforeseen event.
- Seek Out Professionals. Identify a team of professionals (i.e., financial advisor, accountant, attorney) that you feel comfortable working with. Ask friends and family for referrals and interview potential advisors. Once selected, regularly review your financial plan with your team and be sure to check in during any life transitions such as having a child, or getting married or divorced, as these events may impact your plan.
- Define Your Investment Strategy. Work with your financial advisor to develop a target asset allocation for your portfolio. Tell your advisor when you would like to retire and discuss your tolerance for risk so that s/he can help you allocate your portfolio accordingly.
In Your 40s
- Cover Yourself. Personal insurance includes health, life, disability or long-term and property insurance typically includes auto and homeowner’s. Learn about your insurance options and determine the type and amount of coverage that makes sense for you and your family.
- Protect Your Legacy. Even if you if don’t have children or consider your assets significant enough, still think about executing a will, living will, power of attorney and health care proxy to outline your wishes in the event that you are unable to make decisions for yourself.
- Maximize Contributions. With your earnings at its peak, now is the time to boost your savings. Contribute the maximum amount to your retirement plan. If you have children and haven’t done so already, start a savings fund for their college education. If you’ve already started a college fund, now is the time to maximize your contributions to it.
In Your 50s
- Re-balance Your Portfolio. Review your investment portfolio and make any adjustments to accommodate different cash-flow needs and changes in income and living expenses, as well as your changing vision of life after retirement.
- Catch Up on Retirement Savings. At age 50, you become eligible to make “catch-up” or extra, contributions to your IRA and 401(k) plan, or similar retirement plan. This year, the 401(k) plan catch-up amount is $5,500 over the basic limit of $16,500, for a total contribution allowed to $22,000. For an IRA, you can make an extra $1,000 contribution for a maximum of $6,000 for the year.
- Review Your Coverage. Regularly review your life and disability insurance coverage, which generally should replace enough of your income so that your family’s current and future needs are met—including everyday living expenses, short and long-term debts, education for your children, and retirement for your spouse/partner.
In Your 60s
- Benefit from Social Security. At age 62, you’re eligible (in the United States) to start receiving Social Security. However, your benefits could be reduced by as much as 30% if you opt to get Social Security before your Normal Retirement Age (also known as Full Retirement Age, which ranges from age 65 to 67 depending on year of birth).
- Get Back to Budgeting Basics. Learning to live on a fixed income requires different money management tactics than when you earned a salary with potential for increasing over time. Practice good basic budgeting by tracking your money and spending wisely.
- Update Estate Plans. Review your beneficiary designations on qualified plans, IRAs and life insurance policies. Consult with your financial, legal and tax advisors to make sure your estate plans are up-to-date.
Having a financial plan is an important step but you need to review it regularly to make adjustments as life transitions occur. Speak with a financial advisor or visit womenandco.com to access a suite of financial education resources and a vibrant community of financially minded women.
This is a guest post by Lisa Caputo and Linda Descano of Women & Co.
Women & Co. is a financial resource program from Citi, dedicated to helping women achieve their financial goals. Women & Co. provides members with education on a vast array of financial and investing topics, which members access through womenandco.com. By accessing the site, members can read newsletters, listen to audio conferences, and find out about Master Class seminars in major metropolitan areas. For more information, visit womenandco.com.