Plan For Tomorrow | How to plan for retirement at every age
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How to plan for retirement at every age

Friday 1 September 2023 | Reading Time: 5 minutes

Putting away money for retirement is a good idea at every stage of life, whether your career is just getting off the ground or you have celebrated many years in your profession. The sooner you create a savings plan and implement a savings plan, the better off you’ll be when retirement does arrive, so there is no time like the present to get started. Tyler De Haan, Director of Advanced Sales tells us, “The secret to wealth creation is simple, but it requires discipline. The secret is to save early, often, and over a long period of time. During each decade of your life, there are steps you can take to build your financial security for the future and create the income you’ll need to live a fulfilling retirement.


Planning for retirement in your 20sPlanning for retirement in your 20s

As you enter young adulthood, you may be wrapping up college and/or entering the workforce to launch your career. While retirement is further down the road, this can be an excellent time to create a financial plan that can help provide a solid foundation to build upon and give your future self a leg up. Your employer may offer benefits like an employer-sponsored 401(k) as part of their compensation package, where along with your contributions, they offer an employer match that can help you further grow your retirement savings.

To take advantage of this benefit, contact your organization’s or employer’s Human Resources department to find out how to set up your account. Typically, you’ll have the option to contribute to a 401(k) through your job. In addition to this, you could also explore individual retirement accounts (IRAs) which are typically not offered through employment.

How 401(k)s and IRAs differ

401(k)s and IRAs can help you save for retirement, but there are some significant differences to remember.

401(k) – Traditional or Roth

  •  Contributions to a 401(k) may be made with pre-tax or after income
  •  Contributions may be deducted from your yearly taxable income
  •  Taxes may be paid on withdrawals made during retirement

401(k)s let savers take advantage of compounding interest, meaning you earn interest on top of interest. De Haan says, “Compounding interest is like a snowball. The longer your timeframe the higher the hill becomes that allows the snowball of savings to grow bigger.”

Individual retirement account (IRA)

An IRA is an account typically set up at a financial institution. There are three main types of IRAs, each offering different advantages based on how contributions are taxed.

  •  Traditional IRAs – pre-tax contributions, and distributions are subject to tax.
  •  Roth IRAs – after-tax contributions, and distributions are generally tax-free if holding period requirements of at least five years are met.
  •  Rollover IRAs –transfer of assets from an old employer-sponsored retirement account to a traditional IRA. Typically, a rollover IRA is a method to keep the tax-deferred status of those assets.

The contribution limits also differ between the three types of accounts. Talk to your tax and financial professionals about what would make sense and how to build a retirement savings strategy to help you achieve your long-term goals.


planning for retirement in your 30sPlanning for retirement in your 30s

Your personal and financial goals may evolve as you enter the third decade of your life and your career gains momentum. Perhaps you’ve bought a house, married, or started a family. Even though these new priorities will likely require financial resources, you don’t want your retirement savings progress to go by the wayside. You may have had a raise since beginning your career or stepped into a higher-paying role.

Even if you can only manage a percentage point increase, this can help you add more funds gradually without noticing too much being taken from your paycheck. De Haan remarks, “Our present bias will nudge us to want to spend the raises and consume assets today. An effective way to manage against this bias is to set up an annual increase to your contribution rates to make sure you pay your future self first before your bias has a chance to nudge your decision.” You may have also changed jobs or employers at this stage in your career. If this is the case, talk to your tax or financial professional to determine the right course of action for you. If you think about compounded earnings over the next few decades, even if you start saving at age 35, you could substantially grow your savings over the next thirty years.


Planning for your retirement in your 40sPlanning for retirement in your 40s

As you get into your 40s, you may further advance in your career and earn a higher income. This means you can save more in your retirement accounts if you maintain appropriate allocations. While new goals may have been introduced at this life stage, like saving for your children’s education or paying down debt, you’ll still want to prioritize saving for retirement. . Since financial responsibilities can become more complex during your 40s, this can be a great opportunity to meet with a financial professional if you still need one. Having a financial professional can help you create a personalized strategy to keep you on course toward retirement. If you already have a financial professional, this midway point can be an excellent time to check in and revisit your plan to ensure it still reflects your current and future goals.


Planning for your retirement in your 50sPlanning for retirement in your 50s

In your 50s, retirement is right around the corner. Often, your priorities shift, and you work hard to build your savings, pay down debt, and reduce your overall spending. While you may be putting income toward paying off your mortgage or eliminating outstanding debt, it’s a good idea to keep your retirement savings goals in mind.

When you turn 50, you can contribute more funds to your 401(k) and/or IRA. In addition, if you’ve fallen behind on putting money toward your retirement goals, you may be able to make catch-up contributions to your retirement accounts to help bulk up those savings. Your financial professional can be helpful at this life stage to help you explore other income solutions, like annuities, which can provide a regular “retirement paycheck” once you retire. Life insurance can also be a valuable part of your retirement planning. Along with the death benefit protection it can provide to your loved ones, permanent life insurance may also offer an opportunity to grow cash value that you can access for various needs when you retire. De Haan tells us, “This is a transition decade between accumulation and distribution. This is a good time to review potential retirement liabilities and try to match your investments to potential future income streams to make sure your standard of living is kept the same when you finally decide to retire.”


Planning for your retirement in your 60sPlanning for retirement in your 60s

With retirement getting very close, your 60s are the time to double-check your financial plan to ensure all your ducks are in a row. At this stage, you may have paid off any remaining debt, like your mortgage or your children’s education expenses, and can now turn your focus to maximizing your retirement contributions. To avoid running out of money in retirement, meet with your financial professional to ensure all gaps are filled and you have the income you need to maintain your desired lifestyle can be essential.

You may also want to evaluate other factors like healthcare costs, Social Security, life insurance needs, and creating a legacy for your loved ones. By partnering with your financial professional, you can work together during retirement to ensure your income and personal needs can be met and you have enough savings to last as long as you do.


How can I allocate my assets in my retirement portfolio?How can I allocate my assets in my retirement portfolio?

When creating your retirement portfolio, you may wonder how to allocate your assets between higher-risk investments like stocks and more steady investments like bonds. Discussing your goals with your financial professional can help create a personalized strategy; one popular strategy is the rule of 110. To calculate how much of your portfolio to put toward stocks, you subtract your age from 110. Therefore, if you are 35, the rule says that 75% of your portfolio should be allocated toward higher-risk investments (110 – 35 = 75%). The remaining percentage (in this case, 25%) can be allocated to safer assets.

Typically, you are better positioned to take on more risk earlier in your career while you’re still building your portfolio, but as you age, you will likely adjust to take on less risk once you’re closer to retirement. Some retirement allocations can even be set up to automatically change over time to be more conservative based on your target retirement year. Here is an overview of using the 110-(your age) recommendations.

Age

Percentage of stocks and higher-risk investments

Percentage of safer assets like bonds and mutual funds

20

90

10

25

85

15

30

80

20

35

75

25

40

70

30

45

65

35

50

60

40

55

55

45

60

50

50

Remember, this is only a suggested portfolio breakdown, as everyone’s retirement goals, timeline, and risk tolerance are different, and these factors should inform how you create your retirement income strategy. Want to know what steps you can take to get started? North American’s team of financial professionals is ready to assist you and explore the solutions that can help get your retirement goals on track.


Under current law, annuities grow tax deferred. An annuity is not required for tax deferral in qualified plans. Annuities may be subject to taxation during the income or withdrawal phase. Neither North American, nor any financial professionals acting on its behalf, should be viewed as providing legal, tax or investment advice. Please rely on your own qualified tax professional.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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