Retirement

Retirement

Young adulthood (ages 21-35)

Those embarking on adult life may not have a lot of money free to invest, but they do have time to let investments mature, which is a critical and valuable piece of retirement saving. This is because of the principle of compound interest. Compound interest allows interest to earn interest, and the more time you have, the more interest you will earn. Even if you can only put aside $50 a month, it will be worth three times more if you invest it at age 25 than if you wait to start investing at age 45, thanks to the joys of compounding. You might be able to invest more money in the future, but you’ll never be able to make up for lost time.

Retirement

Early midlife (36-50)

Early midlife tends to bring a number of financial strains, including mortgages, student loans, insurance premiums, and credit card debt. However, it’s critical to continue saving at this stage of retirement planning. The combination of earning more money and the time you still have to invest and earn interest makes these years some of the best for aggressive savings.

Finally, don't neglect life insurance and disability insurance. You want to ensure your family could survive financially without pulling from retirement savings should something happen to you.

Retirement

Later midlife (50-65)

As you age, your investment accounts should become more conservative. While time is running out to save for people at this stage of retirement planning, there are a few advantages. Higher wages and potentially having some of the aforementioned expenses (mortgages, student loans, credit card debt, etc.) paid off by this time can leave you with more disposable income to invest.

And it's never too late to set up and contribute to a 401(k) or an IRA. One benefit of this retirement planning stage is catch-up contributions. From age 50 on, you can contribute an additional $1,000 a year to your traditional or Roth IRA, and an additional $6,000 a year to your 401(k).

Estate planning

Your estate plan addresses what happens to your assets after you die. It should include a will that lays out your plans, but even before that, you should set up a trust or use some other strategy to keep as much of it as possible shielded from estate taxes. The first $11.4 million of an estate is exempt from estate taxes, but more and more people are finding ways to leave their money to their children in a way that doesn’t pay them in a lump sum.