financial life planning

Retirement Checkpoints: Age Milestones You Don’t Want to Forget

Building wealth requires making prudent financial decisions, but when you make good financial decisions is just as important as what the decisions are.

Each decade of your life has important financial milestones. Reaching these financial milestones will help you stay on track to reaching your financial goals. Who wants to go backward because of a penalty or a misunderstanding?

At Rock House Financial, we see this happen a lot, so our team of financial planners in Utah have identified some important financial planning milestones to keep in mind. If you’re not sure how to navigate a particular step, or are worried that you may have missed one, let’s talk! The financial planners at Rock House Financial are here to help, regardless of where you are in your financial journey.

 

Are you on track to reaching your financial goals? Schedule a no-obligation consultation with the team at Rock House Financial to find out.

 

In Your 30s (or Earlier): Build Your Savings Muscle

Developing good savings habits is instrumental to any financial success. And the earlier you save, the more overall compound interest and returns you can obtain. Every dollar saved is a boost to how much interest you can earn. Also, every dollar you save in an investment or retirement account is higher potential to multiply your wealth with market returns. Your growth potential increases exponentially as new money is added to your accounts.

With that said, now is the time to make sure you save enough in your company’s 401(k) to receive an employer match. At Rock House Financial, we see so many people miss out on this opportunity, and therefore, leave money on the table – money that can help secure your future.

Here’s a numerical example of what a match really looks like:

Suppose your employer matches 50 percent of your contributions equal to up to 5 percent of your annual salary. If you earn $60,000 a year, and you contribute $3,000 in your 401(k) (5 percent of $60,000), your employer will add $1,500 to your accounts (50 percent of $3,000). In just three years, you would have earned an extra $4,500 in “free money,” on top of your salary and regular 401(k) savings!

While matching is not standard for every company, the average 401(k) match is about 5 percent. Double-check your company’s 401(k) offering, and contribute enough to make the match, if you can. Otherwise, you can miss out on thousands of dollars for your retirement.

According to reports, only 39 percent of Americans start saving in their 20s; most people start later in life and have to play catch-up. Start saving early, and you’ll thank yourself later.

If you’re just getting started, these guides may help:

Financial Planning for Women

Financial Planning for Business Owners

In Your 40s: Think About Your Family

It’s a common misconception that estate planning isn’t important until you’re well into your 60s, 70s or 80s. But it’s actually in your 40s when you should really start thinking about your estate plan, if not earlier!

What will happen to your assets if you should unexpectedly pass away? Have you considered a trust as a way to help your family and loved ones? Have you chosen an executor for your will or determined who will be your Powers of Attorney (POAs), both for your finances and your medical needs?

What would happen to your family if you were to become incapacitated? What would happen to your assets? Who would be left to make the difficult decisions about your finances and your health? There are many misconceptions about what happens to your wealth once you pass away. News alert: If you don’t have something in writing, there’s a good chance you won’t like the answer!

Your 40s is a great time to talk with your financial planner about your estate plan and an efficient transfer of wealth to the next generation.

Rock House Financial can help with this. Read our recent blog posts:

4 Real-Life Scenarios of What Can Happen When You Don’t Have an Estate Plan

How to Choose an Executor for Your Estate (5 Tips)

What this Financial Advisor in Utah Wants Every Woman to Know About Estate Planning

In Your 50s: Boost Your Retirement Savings Further with Catch-Up Contributions

Savings vehicles seem to get better as investors age. This is certainly the case when you reach your 50s. An important milestone to reach during this decade is to take advantage of catch-up contributions in your retirement accounts. This applies to company-sponsored retirement plans like 401(k)s, as well as individual retirement accounts, like Traditional and Roth IRAs.

Normally, the maximum you can contribute to a 401(k) and IRA is $19,500 or $6,000, respectively. But this contribution limit increases if you’re 50 or over, giving you a chance to “catch-up” if you need to.

For IRAs, this opportunity increases the maximum from $6,000 a year to $7,000 a year. That’s a 16 percent increase. Any investor would be excited to see a 16 percent gain in their portfolio in one year, so keep these catch-up contributions in mind for your retirement accounts.

If you have a 401(k) or 403(b), your catch-up contribution allows you to add $6,500 to your annual contributions, increasing your savings by 33 percent to $26,000 ($19,500 + $6,500). Having this additional savings can be a major boost to your retirement plans.

In Your 60s: Choose Your Social Security Age Wisely

Your 60s are an exciting decade for a number of reasons. You may be only a few years away from retirement, and your 60s is when you become eligible for Medicare and Social Security. While Medicare has a hard date for when it becomes available (65), when you begin receiving Social Security payments has some flexibility. But make sure you understand your options completely, as the decision on when to start receiving these benefits has very important ramifications, and it is a decision that cannot be undone!

Though your Social Security benefits can be taken as early as age 62, the longer you wait to take them, the higher your monthly benefits will be. If you’re still working, or if you can wait, talk to your financial planner about postponing your start date. Taking Social Security at age 62 versus age 67 can reduce monthly payments by about 30 percent and can put pressure on your other retirement investments. The average retiree receives about $1,500 per month from Social Security, which typically only supplements your retirement spending, not fully sustains it.

Don’t make a rash decision! Social Security plays an important role in most retirement plans.

In Your 70s (and Beyond): Required Minimum Distributions (RMDs)

Pre-tax retirement accounts enable you to deduct the amount you contribute from your income each year. This can be a great benefit during your working years, especially if you’re in a high tax bracket. When you turn 72, the pre-tax status finally becomes taxable. At this age, you are required to make an annual withdrawal from any pre-tax retirement account you own, which is taxable as income. However, your annual income is often considerably lower as a retiree than during your working years, so the tax burden will be significantly lower.

There are a few important factors to remember about your RMD milestone. Firstly, failing to take your RMD can result in a steep 50 percent penalty of the required amount. Also, these withdrawals must be taken every year until the account balance is zero or someone else inherits the account. Make sure to pay special attention to your RMDs every year.

These required withdrawals can be helpful to your budget but may require a new strategy. For example, if you don’t need the extra money from your RMD and want to avoid the taxes, you can complete a Qualified Charitable Donation (QCD), in which you forgo the taxes on your RMD by sending it directly to a qualified charity. Read our recent blog post: Donating to Charity? Rock House Financial Shares 6 Ways to Do So.

Why a Financial Planner Can Help at Any Decade

No matter where you are in your financial life, working with a financial planner can help you transition into retirement smoothly. As one of the financial planners at Rock House Financial, we help clients make a fully comprehensive financial plan, and then manage their retirement investments and make sure they stay on track.

Leave the heavy lifting and “minor” details to your financial planner. As a financial planner in Utah, Rock House Financial is here to help! Start the conversation.

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