Financial goals by age

Financial goals by age

Financial goals evolve as we journey through life and tailoring them to each decade can set the stage for a secure and fulfilling financial future. From building a foundation in your 20s to enjoying the fruits of your labor in our 80s, this month I want to discuss some key financial goals for individuals in each decade of their lives. Last December I wrote an article on New Years financial goals for 2023. That article is a very short-term view of what you should be doing each year (e.g., maxing your IRA), but this article focuses on the very big picture. Of course, people have very different incomes, interests, and lifestyles, so some of these suggestions might not be relevant to everyone.

Financial goals for your 20’s

In Your 20s: Building a Solid Foundation

1. Establish an Emergency Fund:

  • Goal: Save six months of living expenses if you’re single, three months if you have two incomes.

  • Why: An emergency fund provides a safety net, preventing the need to rely on credit cards or loans during unexpected events like job loss, car accidents, or hospitalizations.

2. Start Retirement Savings:

  • Goal: Contribute at least 10% of your income to retirement accounts. More is better if have the income to support it.

  • Why: The power of compounding works best over longer time frames. Starting early allows your investments to grow exponentially, allowing you to build wealth and reach financial freedom at an earlier age.

3. Create a Budget and Stick to It:

  • Goal: Track and manage your spending to live within your means.

  • Why: Developing good financial habits early on lays the groundwork for a lifetime of responsible money management. A budget helps prioritize spending and saving.

Financial goals for your 30’s

In Your 30s: Building Wealth and Managing Debt

1. Eliminate High-Interest Debt:

  • Goal: Pay off high-interest debts like credit cards, student loans, and auto loans.

  • Why: Reducing debt frees up funds for other financial goals and improves your overall financial health.

2. Increase Retirement Contributions:

  • Goal: Aim to contribute 15-20% of your income to retirement accounts.

  • Why: With potentially more responsibilities in your 30’s, boosting your retirement contributions ensures continued financial security in the future. Most people see large increases to their household income in their 30’s compared to their 20’s, so scaling your savings rate upward is recommended if possible.

3. Invest in Real Estate or Other Assets:

  • Goal: Consider purchasing a home or investing in other assets such as businesses.

  • Why: Real estate and other investments diversify your portfolio, potentially increasing your wealth over time. Moving from paying rent to building equity in a home provides better use of your money, depending on the housing market in your local area.

Financial goals for your 40’s

In Your 40s: Balancing Responsibilities

1. Review and Update Insurance Policies:

  • Goal: Ensure that life, health, and disability insurance coverage is adequate for your family and suitability replaces your income if disaster strikes.

  • Why: If you have more people dependent on your income and your wealth increases, it’s important to begin protecting your family and assets.

2. Build College Savings:

  • Goal: Start or increase contributions to college savings plans if you have children.

  • Why: Saving early for education expenses eases the financial burden when your children enter college.

3. Reevaluate and Adjust Investment Strategy:

  • Goal: Work with a financial advisor to reassess your investment strategy, ensure proper risk and return, and develop projections for reaching financial freedom as early as possible.

  • Why: As retirement approaches, adjust your portfolio to balance risk and return, ensuring your investments align with your goals.

Financial goals for your 50’s

In Your 50s: Preparing for Retirement

1. Maximize Retirement Contributions:

  • Goal: Contribute the maximum allowed to retirement accounts.

  • Why: As retirement nears, maximizing contributions takes advantage of catch-up provisions and accelerates wealth accumulation. Most people earn the most in their careers in their 40’s and 50’s, which means you also pay the most taxes in these years. Maximizing your retirement contributions and catch-up provisions lowers your taxes.

2. Create a Comprehensive Estate Plan:

  • Goal: Establish or update your will, designate beneficiaries, choose medical directives, and consider a living trust for your assets.

  • Why: A well-thought-out estate plan ensures your assets are distributed according to your wishes and minimizes potential tax implications.

3. Downsize and Simplify:

  • Goal: Evaluate housing needs and consider downsizing.

  • Why: Downsizing can free up capital for retirement and reduce ongoing expenses.

Financial goals for your 60’s

In Your 60s: Approaching Retirement

1. Fine-Tune Retirement Budget:

  • Goal: Develop a detailed retirement budget to guide spending and work with your advisor on a sustainable distribution strategy.

  • Why: A clear budget helps manage income and expenses during retirement, ensuring financial stability. Moving to a fixed income from social security and retirement account distributions can be a major adjustment.

2. Explore Healthcare Options:

  • Goal: Investigate and plan for healthcare costs in retirement.

  • Why: Healthcare expenses tend to increase with age, and understanding your options helps you make informed decisions on Medicare, Medigap, and ACA plans.

3. Consider Part-Time Work or Hobbies:

  • Goal: Explore opportunities for part-time work or engage in hobbies.

  • Why: Transitioning into retirement can be smoother with additional sources of income and fulfilling activities to replace full time work.

Financial goals for your 70’s

In Your 70s: Enjoying Retirement

1. Monitor and Adjust Investments:

  • Goal: Continuously review and adjust investments for income and stability.

  • Why: Ensure that your portfolio aligns with your retirement lifestyle and provides the necessary income.

2. Regularly Review Estate Plan:

  • Goal: Periodically update your estate plan to reflect any life changes.

  • Why: Keeping your estate plan current ensures it remains an accurate reflection of your wishes.

3. Explore Long-Term Care Options:

  • Goal: Investigate long-term care insurance and needs or alternatives to long-term care insurance (self-insuring for example).

  • Why: Planning for potential long-term care needs helps maintain financial independence and reduces the burden on loved ones.

Financial goals for your 80’s

In Your 80s: Preserving Wealth and Legacy

1. Stay Informed About Finances:

  • Goal: Stay involved and informed about your financial affairs.

  • Why: Remaining aware of your financial situation helps prevent fraud and ensures your assets are managed according to your wishes.

2. Review and Simplify Investments:

  • Goal: Simplify your investment portfolio for ease of management.

  • Why: A streamlined portfolio can make it easier for you or your heirs to manage your assets.

3. Regularly Communicate With Family:

  • Goal: Maintain open communication about financial matters with family members.

  • Why: Transparent communication helps family members understand your wishes and facilitates a smoother transition of assets.

Personal financial goals are a dynamic aspect of life, adapting to your changing circumstances and needs. By setting and revisiting these goals throughout each decade, you can pave the way for a secure and enjoyable financial journey across your lifetime. One of the benefits of being a financial planner is that I get to work with people at different places in their financial journey, and this has really helped me understand the types of challenges people face as they age.

Jesse Carlucci