Change is constant. As you grow older and take charge of more responsibility, your financial planning needs change too. Only saving is not enough; taking the planned steps to retire early in your working years is equally important. As your retirement is near, the fear becomes outliving your retirement savings.
Recently, we have seen young generations taking charge of their finances, seeking out to build short-term savings, asking questions about combining finances with a spouse, and planning to buy their first home.
In our experience, there are five financial stages of life, so let’s break down what they look like at each of these phases.
Early Career Plan
The earlier you make decisions in your career, the more grip you will have for your long-term financial health. If you develop good financial habits early, there’s a better chance that you’ll reach your retirement goals with less effort than your peers.
The main focus at the beginning of one’s career should be money management and planning your financial goals.
So, sit and ask yourself, what do you hope to accomplish in the coming 10, 15, or 20 years? It could be to get comfortably married and start a family. Or have a net worth of $1 million by the time you hit 40.
Whatever it is, the rule to live by it: Spend less than you earn and save the difference permanently.
Apply this rule and pair it with a clear set of financial goals, this way, you will have easy success down the road plus protection from any significant circumstance life may throw at your practice.
During your early career, money management should have the below points:
- Learning to spend less than you earn
- Saving more
- Purchasing or saving up for home later in life
- Paying off high-interest debt or any other debt
- Creating a financial plan with short, mid, and long-term goals
Also read: Avoid These Common Financial Mistakes in Your 30s
Mid-Career
When a person hits their mid-career, the focus shifts from managing money to long-term wealth building, protecting your family, and others preparing for retirement. Your income could be higher than before, but now you have the funds to set aside money for your long-term goals, like starting your own business or saving for your children’s college.
During this stage, financial planning should include:
- Consummating retirement contributions for a 401(k)
- Consummating contributions to IRA
- Health insurance coverage for your family
- Checking in on tax advantages
- Preparing a will or guardianship provisions for your kids
- Saving for college education
- Paying for short goals like vacations and home maintenance entirely out-of-pocket
Also read: 10 Best Side Hustles You Can Start Earning With Now
Pre-Retirement
Once you’re five from retirement, you’ll have an intense focus on your goals. This is where you identify holes in your financial plan and take action to ensure you’ll be where you want to be. Do not forget to evaluate your progress so far and determine whether you’re on or off track. Consider any risks that may throw you off track.
Financial planning at this stage includes:
- Adjusting your plan to meet retirement goals
- Creating a sustainable withdrawal strategy for retirement
- Paying off the mortgage and other expenses
- Maxing out all retirement contributions each year
- Minimizing tax burden
- Growing savings and other investments
- Changing your portfolio strategy if it’s too aggressive
Also read: How Much to Save & Invest as per Your Salary
Early Retirement Plans
For many, retirement is a brand-new journey, unlike anything they’ve ever experienced. It’s the first time you ditch the steady habit paycheck to exchange for finite resources and never-ending free time. And it’s also a time to see if all your hard work has paid off. There aren’t any do-overs, so you’ll want to make sure you’re not exhausting your resources too quickly. One common pitfall in this is overspending. And remember, financial planning doesn’t stop even after this. It becomes even more crucial to monitor your nest egg and make adjustments to ensure you’re not outliving your retirement savings.
Hence we focus on preservation during this financial stage by:
- Monitoring your withdrawal rate to ensure it doesn’t outrun your portfolio performance
- Ensuring your portfolio is in respect to protection and growth
- Tracking your budget and making necessary alterations
- Managing your tax strategy
- Updating your will and estate as needed
Late Retirement
Your late retirement years are majorly about balancing health and wealth for the long match to your assets. By this time, you may have done all the things you love. Maybe you’ve hung out with the grandchildren, volunteered in your local community, or even traveled a bit. The plan is that you’ll still do all these things, But these later years are generally met with higher medical bills and health issues you never had. Retirees typically allocate more of their budget toward healthcare costs as they age. When you’re in your 60s, healthcare accounts for roughly 10 percent of your budget. By the time you’re in your 80s, it jumps up to 20 percent.
Financial planning in this stage consists of:
- Consider living options within your long-term care
- Updating your will and estate plan
- Ensuring your withdrawal rate is within a good range
- Making sure you’re selling investments in a tax-efficient manner
- Managing healthcare costs
Also read: 15 Signs You Are Good at Managing Your Money
Conclusion
The only constant in life changes. As you move throughout each life stage, your financial planning strategy should change too. At Wizely, we have taken great care to curate a customised experience for all your financial needs. So whether you are just starting with your financial journey or or you’ve been doing it for decades, we can help you create a personalized plan to help you work toward all your goals.
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