Planning for retirement at each stage of life

Whether you’re just starting in your career or retirement is close on the horizon, planning for the future can significantly impact your financial well-being in the years ahead. Since preparation is a good idea for most, the sooner you start saving or implementing a savings plan, the more likely you’ll have the financial security to maintain your lifestyle throughout retirement. Tyler De Haan, Director of Advanced Sales tells us, “The secret to wealth creation is simple, but it requires discipline. The secret is to save early, often, and over a long period of time.” As you hit different milestones along the way, there are various steps you can take during each decade of your adult life to set yourself up for success.

How to plan for retirement in your 20s

You may be finishing college, entering the workforce, or further building a career at this life stage. While retirement is far in the distance, this can be an excellent time to give your future self a leg up and create a financial plan that can help provide a solid foundation to build upon. As part of the compensation package, your employer may offer benefits like an employer-sponsored 401(k). Along with your contributions, they offer an employer match that can help you further grow your retirement savings.

To take advantage of this benefit, contact your organization’s or employer’s Human Resources department to find out how to set up your account. Typically, you’ll have the option to contribute to a 401(k) through your job. In addition to this, you could also explore individual retirement accounts (IRAs) which are typically not offered through employment.

Differences between 401(k) and IRAs

Both 401(k)s and IRAs can help you save for retirement, but there are some crucial differences.

401(k) – traditional or Roth

• Contributions to a 401(k) may be made with pre-tax or after income
• Contributions may be deducted from your yearly taxable income 
• Taxes may be paid on withdrawals made during retirement

401(k)s let savers take advantage of compounding interest, meaning you earn interest on top of interest. De Haan says, “Compounding interest is like a snowball. The longer your timeframe, the higher the hill becomes, allowing the snowball of savings to grow bigger.” Saving earlier can help you save more over the long term. Compound interest calculators can help illustrate this growth.

Individual retirement account (IRA)

An IRA is an account typically set up at a financial institution. There are three main types of IRAs, each offering different advantages based on how contributions are taxed.

• Traditional IRAs – pre-tax contributions, and distributions are subject to tax.
• Roth IRAs – after-tax contributions, and distributions are generally tax-free if holding period requirements of at least five years are me
• Rollover IRAs – transfer of assets from an old employer-sponsored retirement account to a traditional IRA. Typically, a rollover IRA is a method to keep the tax-deferred status of those assets

The contribution limits also differ between the three types of accounts. Talk to your tax and financial professionals about what would make sense and how to build a retirement savings strategy to help you achieve your long-term goals.

How to plan for retirement in your 30s

As you enter the third decade of your life, your personal and financial goals may change as you buy a house, get married, or start a family. Even though these new priorities will likely require financial resources, you don’t want your retirement savings progress to go by the wayside. You may have had a raise since beginning your career or stepped into a higher-paying role.

Even if you can only manage a 1% increase, this can help you add more funds gradually without noticing too much being taken from your paycheck. De Haan remarks, “Our present bias will nudge us to want to spend the raises and consume assets today. An effective way to manage against this bias is to set up an annual increase to your contribution rates to make sure you pay your future self first before your bias has a chance to nudge your decision.” You may have also changed jobs or employers at this stage in your career. If this is the case, talk to your tax or financial professional to determine the right course of action for you.  If you think about compounded earnings over the next few decades, even if you start saving at age 35, you could substantially grow your savings over the next thirty years.

How to plan for retirement in your 40s

Now in your 40s, you may be experiencing further career growth and have started to amass higher earnings. This means you can save more in your retirement accounts if you maintain appropriate allocations. While new goals may have been introduced at this life stage, like saving for your children’s education or paying down debt, you’ll still want to prioritize saving for retirement.

Since financial responsibilities can become more complex during your 40s, this can be an excellent opportunity to meet with a financial professional if you do not currently have one. Having a trusted financial professional can help you create a personalized strategy to keep you on course toward retirement. If you already have a financial professional, this midway point can be a good time to check in and revisit your plan to ensure it still reflects your current and future goals.

How to plan for retirement in your 50s

If you’ve entered your 50s, retirement is right around the corner, and you may have begun to shift your priorities, including paying off debt, increasing your savings, and reducing overall spending. While you may want to put more income toward paying off your mortgage or eliminating outstanding debt, it’s a good idea to keep your retirement savings goals in mind.

If you’ve fallen behind on putting money toward your retirement goals, you may be able to now make catch-up contributions to your retirement accounts to help bulk up those savings. Your financial professional can be helpful at this life stage to help you explore other income solutions, like annuities, which can provide a regular “retirement paycheck” once you retire. Life insurance can also be a valuable part of your retirement planning. Along with the death benefit protection it can provide to your loved ones, permanent life insurance may also offer an opportunity to grow cash value that you can access for various needs when you retire. De Haan tells us, “This is a transition decade between accumulation and distribution. This is a good time to review potential retirement liabilities and try to match your investments to potential future income streams to ensure your living standard is kept the same when you finally decide to retire.”

How to plan for retirement in your 60s

With retirement knocking on your door, your 60s are the time to make sure everything is in order financially so you can spend the years ahead enjoying all your hard work and achievements. By now, you have ideally paid off existing debt like your mortgage or your children’s education expenses and can turn your focus to maximizing your retirement contributions. To avoid running out of money in retirement, meet with your financial professional at this life stage can help make sure all gaps are filled. You may also want to evaluate other important factors like Social Security, healthcare costs, life insurance needs, long-term care, and creating a legacy for your loved ones. Continued support from your financial professional can also help you determine how much you can afford to spend once you retire and are no longer earning active income.

What are my allocation options for my retirement portfolio?

As you build your retirement portfolio, you may wonder how much money you should invest in higher-risk, higher-reward investments like stocks versus the amount allocated toward more secure, steady investments like bonds. Your financial professional can be an excellent resource for this discussion; one popular strategy you can use is the rule of 110 to determine your percentages. To calculate how much of your portfolio to put toward stocks, you subtract your age from 110. So, if you are 45, for example, the rule says that 65% of your portfolio should be allocated toward higher-risk investments (110 – 45 = 65%). The remaining percentage (in this case, 25%) can be allocated in safer assets.

Typically, you are better positioned to take on more risk earlier in your career while you’re still building your portfolio, but as you age, you will likely adjust to take on less risk once you’re closer to retirement. Some retirement allocations can be adjusted automatically over time to be more conservative based on your target retirement year. Here is an overview of this strategy.

Remember, this is only a suggested portfolio breakdown, as everyone’s retirement goals, timeline, and risk tolerance are different, and these factors should inform how you create your retirement income strategy. 

Curious how to get started and what steps you can take today? Midland National’s team of professionals is ready to discuss all things retirement and can help you explore your options for reaching your retirement goals. 

Under current law, annuities grow tax deferred. An annuity is not required for tax deferral in qualified plans. Annuities may be subject to taxation during the income or withdrawal phase. Neither Midland National, nor any financial professionals acting on its behalf, should be viewed as providing legal, tax or investment advice. Please rely on your own qualified tax professional.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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