Retirement Savings Approaches by Decade

Planning for retirement is a journey that evolves with every phase of life, and there's no one-size-fits-all approach to securing your financial future. Whether you're laying the foundation of your career in your 20s or navigating the complexities of mid-life financial planning, every step taken brings you closer to a more secure retirement.

With an emphasis on the power of starting early, let's explore how to adapt your retirement planning to meet your changing needs and goals. Please keep in mind that these suggestions are general in nature – your situation may differ. If you're unsure, consult with a qualified professional before making investment decisions.

Get Started in Your 20s

You may be just starting life as an independent adult, but that doesn't mean that you should put off thinking about the future. Every decade comes with its challenges, and your 20s are no exception.

In this decade, you may have student loans to repay, your earnings may be more entry-level than executive, and the cost of establishing your first home may seem daunting. While it may appear that you don't have any money to save, starting a retirement account should be high on your to-do list. Here's why:

• The Sooner You Get Started, the More Money You Will Make. Compound interest is a beautiful thing - assuming an average annual return of 8%, saving just $100 per month beginning at age 20 would yield a balance of around $500,000 by age 65. Depending on the actual rate of return, the final balance could be higher or lower.

• Setting the Habit Now Means More Money in the Future. The savings habit isn't always an easy one to start, especially if you allow life to get in the way. By establishing a solid savings habit with your first job, you will teach yourself the importance of saving throughout your lifetime.

• You'll Get More From Your Employer. If your company offers a retirement savings match, use it as soon as you're eligible. Employer matching is essentially getting free money, but you'll be required to save to get it.

When it comes to investing in your 20s, most experts agree that this is the time to set your expectations, build lifelong savings habits, and take more risks with retirement investments (for example, by investing in stocks versus bonds). At this stage of life, you can handle some setbacks and have ample time to rebuild your portfolio in the event of a market downturn.

Investing in Your 30s

For many, this decade is filled with new expenses, such as buying a home and starting a family. But while spending often increases, it's important to continue saving for the long term.

Depending on your situation, it may be challenging to invest more, but continuing to save will pay dividends over time. Consider taking at least a small portion of any annual raises to increase your 401K contributions and avoid accruing additional debt (especially high-interest credit card debt).

Given decades until retirement, most experts suggest that your 30s are a good time to invest in stocks. With time on your side, you should be able to weather any financial storms while giving yourself ample opportunity to experience the potential for higher returns.

Investing in Your 40s

Retirement can seem far off at this stage of life, but it's closer than one may expect. If you've managed to control your debt and increase your earnings, you may see that bills don't take up quite as much of your budget as before. If so, consider allocating that "extra" money to additional retirement contributions.

Depending on your risk tolerance, this decade may be a time to consider becoming a bit more conservative in your investment approach. Some may opt for a safer (albeit lower-yielding) mix of stocks and bonds rather than an all-stock portfolio.

Investing in Your 50s and 60s

In this decade, it's time to evaluate your savings and estimate how much you'll need to retire comfortably. If your savings are less than you may need, there's some good news - people tend to save the most during their last decade of employment. For many, the fact that retirement is getting close makes savings a priority, and, in addition, many major life expenses (mortgages, children, and college tuition) are mostly behind them - freeing up more cash for saving.

As those in this decade approach retirement, a common strategy is to focus on capital preservation as well as appreciation. Remember, while the stock market has historically increased overall, there could be times of an extended decline. For example, after the NASDAQ stock index peaked in 2000, it took 15 years for it to return to the same level. So many experts would suggest a portfolio that consists of both stocks and bonds, with the balance determined by your tolerance for risk.

Other investment decisions to consider when approaching retirement include:

• Consolidating 401K Accounts. By the time you hit this stage in your career, the odds are good that you have had several employers – and several retirement accounts. Pulling all those separate accounts into one can give you more investment choices, allowing you to make more money.

• Increasing Contributions. The federal government allows older individuals the opportunity to make higher "catch-up" contributions to many savings plans. Plus, if your employer matches contributions, saving more will increase their contribution to your retirement, too.

• Opening new accounts. If you are maxing out your employer-matched retirement account, consider opening a Roth IRA to give you more savings power (and tax-free withdrawals in retirement).

The Takeaway

Each decade of life offers the chance to improve your financial future. Your 20s provide the best opportunity to take advantage of the magic of compounding, your 30s and 40s bring the opportunity to grow and protect wealth, and your 50s and beyond focus on maximizing and preserving your nest egg.

As you move through life's stages, keep revisiting your financial plan, stay informed about the evolving landscape of retirement savings, and don't hesitate to seek professional advice to tailor a plan that's right for you.