What exactly should you be doing to prepare for retirement and when should you be doing it? I stopped by the TODAY Show with Kathie Lee and Hoda to break down what to do in your 20s, 30s, 40s, 50s and 60s to make sure you have enough money to retire.
You can catch the full segment here and my tips below:
IN YOUR TWENTIES
Start An IRA If A 401(k) Is Not Offered
Goes without saying you should invest in your work 401k plan (you can contribute up to $18,000 this year) but if you don’t have access to one as many Millennial who freelance or work for starts-up do…open an individual retirement account or IRA. You can contribute up to $5,500 this year.
You may feel like you have NO money for this in your 20s, older people, including myself will tell you that even as we earn more, we wish we had saved more when we were younger Your twenties is when your probably don’t have a mortgage, don’t have children. It’s just you. Pay yourself before anyone else.
Think Twice Before Taking On Big Debt For Some Grad Schools
This is also a popular time to think about going BACK to school for a graduate degree…but before you commit to $100,000 in loans for a Masters in whatever…ask yourself – is it really necessary for me to advance? Am I going to earn enough in my next job to pay this back comfortably? In some cases you can take an intensive 8 or 10 week course at night or online offered by a number of certified institutions that’ll teach you new skills, offer training and even help you with your job search afterwards. And many of these programs make it possible so you can still work and keep a paycheck.
IN YOUR THIRTIES
Cap Monthly Housing Costs To No More Than 30% Of Take Home Pay
At this stage in life you may be contemplating becoming a homeowner. But it’s not for everyone. You have to do the math. Can you comfortably afford the mortgage as well as property taxes, home insurance, maintenance and keep that to no more than 30% of your take-home pay? If not, then you may be better of renting for longer until you earn more and save more.
Consider Long-Term Costs To Leaving The Job Market To Care For A Child
In the short-term it may make sense to quit your job for a year or longer to be a full-time parent. The average cost of childcare has been climbing over the years. Day care, for example, now costs an average $200 a week, according to Care.com. But beware of the long-term opportunity costs of leaving the workforce. You’re not just forgoing a salary. You lose the ability to contribute to a workplace retirement plan and you may end up with reduced social security benefits.
I actually found this calculator that will tell you how much you stand to LOSE in lifetime earnings if you opt out of the workforce for a given time.
If you do take time off, keep your foot in the door. Stay on top of the news within your industry and tap into resources that can help with a smooth and fast transition back into the job market. There’s a new site called ApresGroup.com, which is sort of a LinkedIn for moms, especially, who want to re-enter the workforce after taking time off. It offers tools, content and access to career coaches. (Check out my interview with the co-founder of Apres, Jennifer Gefsky here.)
IN YOUR FORTIES
Prioritize Paying Off Your Mortgage
Start to get aggressive with paying down that mortgage so that you can be totally debt-free by retirement. One way to speed up the payoff is to add one extra monthly payment per year towards the principal, which could leave you mortgage-free years sooner and with lots of money saved in interest payments.
Don’t Jeopardize Retirement To Pay For A Private College
Prioritize your own retirement savings over college savings. And don’t assume a private college with a brand name is necessarily the BEST investment. If you plan it out and do your research you’ll find there are many public colleges and universities have fantastic reputations, great resources and massive alumni networks for a fraction of the price. And if you have your heart set on a private school, enlist your kids to research that school’s financial aid – scholarships, grants and other ways of attending that school more affordably.
IN YOUR FIFTIES
Investing In Your Health Can Lead To More Savings For Retirement
Take care of yourself! Physical health correlates to financial health and reduced health costs decades down the line. The cost of health care is a wild card in retirement…But there are preventative measures we can all take to mitigate those health risks and health costs by exercising, eating right and staying on top of doctor visits.
Take Advantage Of 401(k) Catch-Up Contributions
If you haven’t been saving much or at all up til this point in your life, you need to get super aggressive. That means paring down costs and saving more than a third of your income. If you have a 401k at work take advantage of catch up contributions. Those who are 50 and older can contribute an extra $6,000. If you have an IRA you can contribute an extra $1,000.
IN YOUR SIXTIES
If Possible, Delay Collecting Social Security Until Age 70
Delay social security payments until 70 when you’ll receive the maximum benefit. If you can wait until then your monthly social security benefit will be 76% greater than had you started collecting it at age 62. Instead, if you need to, tap your IRA or 401k instead of social security…until age 70.
Think Twice Before Providing Financial Handouts To Children
Don’t become the bank of Mom and Dad. Your kids are grown but they may start coming to you to help with the down payment on their new house or whatever else they need. 1) You don’t want to enable your kids to think they you’ll always be there to bail them out and 2) Don’t compromise your savings and let your emotions of being a parent cloud your financial judgment. If you can’t afford it – say so!
Improve Your Work Skills & Prepare For Next Stage In Life
Age discrimination is unfortunately a real thing as we got older. If you hope to still work in your 60s…One way to combat that is to stay on top of your skills and start thinking about how you want to transition out of your current career. Think about what do you want to retire TO…and what will that mean as far as laying the foundation for that – new skills, networking. Start thinking ahead.