I’ve titled this month’s blog, “Investing for the Ages.” To be specific, I wanted to address some of the various ways people can invest at different ages, or stages, of life. Each point in life gives us opportunities, as well as challenges, for investing, and those can change over the years.
To start, the best time to begin investing is as early as possible. Most professionals will encourage some saving as soon as a person is earning money. With that first job, a teenager can learn some basic budgeting lessons that include investing. For example, how much money should be donated to church or other charity, how much should be used for enjoyment, and how much should be put into savings. One model suggests a new wage earner should give 10% to charity, put 10%-20% into savings and use the rest for personal enjoyment. Those dollars that go into savings likely go into a local savings account at a bank or credit union. As soon as possible, however, it is valuable to work with a financial planner who can invest those savings more aggressively. Of course, most young people don’t come up with that plan on their own, so parents need to teach and encourage those behaviors from the start.
During the post-college years, the 20s and 30s, it can be difficult to find extra money for investing. There are other financial demands such as college debt, car loans, rent or mortgage, and more. This is also a time to continue an aggressive investment strategy and seriously consider Roth IRAs for retirement planning. Being in a lower tax bracket at that stage of life allows the investor to take advantage of giving less to the IRS. In addition, those investment dollars have multiple years for growth. This is also a time to continue good budget planning. Don’t overextend on purchases to the point that saving is not an option. Also, take advantage of any employer matching plan. Even small contributions will be enhanced by the additional contribution from your company.
As people enter their 40s and 50s, there are new opportunities. These are some relatively high-income years and possibly reduced-expense years as well. Taxes are likely a greater concern, and investment strategies should include good tax planning. You can put more savings into traditional IRAs, 401(k)s or other investments. These are years to remain aggressive assuming retirement is still a number of years in the future. This is also the time to teach your children the lessons learned about budgeting and investing. Pass on your knowledge so they will reap the long-term benefits.
The 60s are a time to seriously consider your current situation and start working on a long-term retirement plan. Consider the various sources of income such as social security, pension, tax-exempt as well as taxable accounts, and more. Good budgeting continues to be critical as you think about medical expenses, travel goals, and other plans for your retirement years. A financial planner can help you evaluate your situation and make decisions that accomplish your goals. This is also a time to think about your estate plan and make any changes that fit your financial situation.
The last stage, I’ll just call the retirement years, could last months or decades, so flexibility and long-term needs must be factored into your plan. It is possible that you want to give large financial gifts to your loved ones while you are living and able to see them enjoy those gifts. It is also critical to plan effectively so you have enough money to cover your personal expenses.
Consider your IRA as a source for charitable giving since that is a taxable asset, but charities don’t pay taxes. Then direct more tax-free assets for your loved ones.
With good planning throughout your life, you can find great joy and satisfaction along the way as you save, invest, spend and share the blessings of your financial resources. It is also wise to find a financial planner early in your life so a comprehensive plan can be implemented and you can enjoy the full benefits of a good strategy.