Every decade poses unique challenges when it comes to retirement planning.
In your 20s, retirement can seem like an eternity away, making it difficult to find the motivation to save regularly for it. Adding the challenges of starting a career after college and paying down student loans makes saving that much more difficult.
Once you reach your 30s, the goal of buying a home leads people to focus their savings toward a down payment. The costs of raising children, currently estimated at $245,000 by the USDA, further limits the available money that can be put away for retirement.
The challenges of saving when you're younger make it critically important to make the most of your financial decisions in your 40s and 50s. Beware: There are still challenges that could limit how much you're able to save. The key to making smarter decisions during these decades is to be prepared.
What to Do in Your 40s
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People often experience peak earnings in their 40s. Because of the greater cash flow, this may be the time you'll be most equipped to maximize the amount you save. If you are able to max out both your IRA and 401k, great! If not, try to increase the amount you're saving for retirement bit by bit, year after year.
As your children get older, you may want to ramp up the amount you're saving for college. It's great to want to help ease your children's financial burden when going to school, but it's essential that you prioritize saving for retirement first. Loans will be available to help finance the costs of college; there are no such loans to help finance your retirement.
If you haven't executed a will, you should do so as soon as possible. If anything happened to you and your spouse and you didn't have a will, your assets will be distributed by the state. This distribution may occur in a manner that contradicts your wishes and may not happen in a way that's best for your heirs. A will is also the best way to transfer guardianship if you have small children.
What to Do in Your 50s
By the time you reach age 50, you're likely part of what is commonly referred to as the "sandwich generation." The sandwich generation refers to people who have to care for both their adult children and their aging parents at the same time. In addition to the financial strain of caring for both your parents and your children, the emotional strain of caring for aging parents can cause those in the sandwich generation to experience a significant amount of stress. It's important to remember to make sure you are taking care of your retirement savings first, before taking on the financial challenge of caring for others.
Age 50 is also the time you can make "catch-up" contributions to tax-advantaged retirement savings accounts. In 2015, you can contribute an extra $6,000 to a 401k and an extra $1,000 to an IRA. If you have the available cash flow, it's a powerful tool to help accelerate your savings.
This is the period when it becomes critical to begin seriously thinking about how to prepare for your health care costs in retirement. Educating yourself about and considering long-term care (LTC) insurance while still in your early 50s is often the best time to purchase a policy, as premiums will likely still be low enough to fit into your financial plan. Waiting too long to purchase a plan could render you uninsurable because of existing health issues.
You should also take this time to contribute as much as possible to a health savings account (HSA) if you are eligible for one. Contributions made to an HSA are tax-free, as are distributions as long as you use the money on qualified medical expenses. Once you enroll in Medicare at age 65, you'll no longer be able to contribute to an HSA, so it's important to maximize your contributions now. Once you reach age 55, you'll be able to contribute an extra $1,000 annually.
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Your 40s and 50s are critical when it comes to preparing for retirement. Wiser decisions
can help make sure you're maximizing the impact of your savings.
By Bruce Helmer and Peg Webb, financial advisers at Wealth Enhancement Group and co-
hosts of "Your Money" on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at
yourmoney@wealthenhancement.com . Securities offered through LPL Financial, member
FINRA/SIPC.
