As we grow older, our priorities tend to change and evolve over time and so it goes with retirement savings. Did you know that millennials are not the youngest generation we have to kick around anymore? Nope, that honor belongs to generation Z. The youngest millennials are 24-years-old. As a Generation X person, do we look at retirement savings in the same light as Generation Z? Different generations have different priorities and that results in different approaches toward retirement savings. But then again, the more things change the more they stay the same. Here are some retirement saving tips based on age.
No limits. Dream huge! Most of us smile at our 20s because we don’t remember our worries. Hey, 20-year-old’s have problems too but one of them isn’t likely retirement. Retirement should feel like an opportunity for 20-year-olds because they have time on their side. Compound interest is the most powerful retirement tool available to you. Even a young person making minimum wage, can use the time value of money to make big gains. Start dreaming about where you want to live if you could live anywhere in the world. Think about the things you want to do in your lifetime. Hike the grand canyon? Sail a boat around the world? There are no limits. Set your goals high and start saving. Income is likely low but so are expenses. Start putting a % of your earning in an IRA account. 10% is a good start.
Congratulations! We are wiser because we are older (maybe)! Do not get overtaken by insignificant stuff because it is easier than you think. Keep your guard up! If you have credit card debt, pay it off. Do not start browsing the new car lots looking at a larger vehicle to fit the family. Justifications will derail the best of intentions and that includes retirement plans. You likely are making a little more money now that you’re a little older. If you start purchasing SUVs “because you need a reliable car” and behaving like your friends, it will derail your retirement plans. Your expenses can easily go up over your income so rather than increasing your expenses, increase your retirement savings. That is why I recommend saving a percentage of income for retirement because you automatically contribute more to your retirement as you earn more income.
Keep your defenses up. You work hard so you think you deserve a little treat here and there. Maybe you deserve a vacation to The Bahamas for all that you do. I hate to be the bearer of bad news, but “deserves” has nothing to do with it. Vacations and hot tubs and new cars may feel like just rewards for your hard work but the budget dictates purchases and not feelings. It is so easy to get trapped this way so keep your defenses up for impulse and needless purchases. This is likely the age you are most vulnerable. Maybe you were unable to start a retirement plan when you were younger or you went through a life changing event that depleted savings. Like planting a tree, the best time to start retirement savings was 20 years ago but the 2nd best time is now!
Leave that money be. Start if you have not. At 50, kids may be leaving or out of the house for a while or maybe you have made a job change or some other milestone has been reached. If you started your retirement savings when you were young, it has likely grown substantially (thank you, compound interest!) so you will be tempted to use it. Oh, you will be sorely tempted! Do not withdraw or use money from your retirement because that money is for retirement. Sounds so simple but human nature wants to spend some of that money when we see a large balance just sitting there. Keep your defenses up and start thinking seriously about how you want to transition from work to retirement. If you still haven’t started a retirement savings, now is the best time. It is never too late to start.
Get real with it. Its time to start considering retirement for real. What date would you like to retire on and what income would you have on that date? Do you want to continue to work full time or part time beyond that date? Where will you live and how will you live. Start looking at specific details. Start picturing what it will look like in your mind so that you can enjoy the transition without any unwanted surprises. The homeward stretch is here so enjoy it with the confidence that you maximized your retirement.