Age-Based Financial Planning Milestones

first_imgBy Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension, [email protected] to medical standards of care (e.g., having a mammogram starting at age 40, a colonoscopy starting at age 50, and regular blood pressure and bone density tests), certain age-based milestones can tell people the key financial planning action steps that they need to take at different ages.The following financial activities often take place at various decades of a person’s life:20s and 30s– Early retirement savings, debt repayment (e.g., student loans), and household formation40s and 50s– Increased earnings, continued wealth accumulation, and launching of adult children60s– Peak earning years (if still employed), preparation for retirement, and retirement70s and Above– Life transitions (e.g., long-term care, widowhood, and death) and wealth distributionEspecially during later life, there are many age-related financial milestones. Examples include eligibility for catch-up contributions to tax-deferred retirement savings plans at age 50, eligibility for early (reduced) Social Security benefits at age 62, eligibility for Medicare at age 65, and required minimum distributions (RMDs) from tax-deferred retirement savings plans at age 70 ½. Like medical milestones, which are generally determined by research findings (e.g., clinical trial results), financial milestones are also grounded in facts, typically tax laws, legislation, and knowledge of the impact of compound interest.Although actual timing will vary from person to person (e.g., I completed a Ph.D. program in my 40s), below are some suggested financial milestones to achieve during each decade of adult life. Milestones achieved at an earlier age (e.g., a good credit score and an adequate emergency fund) should continue during subsequent years.Photospin/Ruslan KudrinAge 30Financial independence from parents (e.g., independent living arrangements and no “subsidies” to pay household expenses such as insurance premiums and cell phone bills)Student loan debt completely repaid or close to repayment (e.g., standard 10-year repayment plan)A year’s worth of salary (1x) saved for retirementA good credit history established with a credit score in the low- to mid-700s or higherRegular saving/investing and at least three to six months of income set aside for emergenciesEducational credentials earned or near completion (e.g., certifications and graduate/professional degrees)Have current estate planning documents and life insurance to protect dependents or co-signers, if applicablePhotospin/Ruslan KudrinAge 40Three times annual salary (3x) saved for retirement; saving at least 15% of gross incomeCollege savings established for children, if applicableIncreased investing expertise and diversification of investment portfolio assetsIncreased human capital (i.e., job skills and knowledge) to remain employable and earn promotions/raisesAge 50Photospin/MonkeyBusiness ImagesSix times annual salary (6x) saved for retirement; making catch-up retirement savings plan contributionsIncreased knowledge about the specifics of Social Security, Medicare, and employer retirement benefitsIncreased knowledge of aging parents’ finances and communication about caregiving-related issuesUse of financial advisers, as needed, as net worth increases and finances become more complexAge 60Eight times annual salary (8x) saved for retirementPhotospin/Scott Griessel/CreatistaPaid off mortgage, home equity loan, and credit card debt prior to retirementCatch-up retirement strategies used, if needed (e.g., downsizing, moving, working longer, and selling assets)Learning new skills and/or making other preparations to transition to a “second act” job or volunteer role To learn more about age-based financial planning milestones from age 0-10 through 90-100, read “Money Milestones for Each Decade” (Reuters).last_img

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