Navigate life’s changes with a financial plan

We make financial adjustments in our life all the time, at all ages. And it’s a good thing we do because we have many years of practice ahead of us to make decisions, big and small, now that Americans are living longer than ever: 76.2 years for males and 81 years for females.


The younger we are, the more likely and frequently our needs and wants will change, and so too our financial goals. Marriage, parenthood, buying a home, saving for the future, aging parents, loss of a job or a stalled career can dramatically alter our financial well-being and path to a prosperous future. A financial plan is critical in helping to navigate life’s changes.
“The common theme at all ages is having a good, solid and consistent savings rate,” said Scott Leonard, author, certified financial planner and founding partner of Navigoe in Redondo Beach, Calif. “Save 10 to 15 percent of gross income every year, not just for retirement.”
It’s easy to get caught up in the present, losing sight on how our bad decisions when we’re young can impact our lives later on: debt, bad credit scores, putting off retirement planning, not saving enough and bad spending habits.
With this in mind, here are three key financial moves you should consider making in your 30s, 40s, 50s and in retirement to live comfortably through each decade.

In Your 30s
You made it through the roarin’ 20s a little wiser and are getting some traction with that college degree and maturing skill set in the workplace. You are confident and full of dreams … and probably a little naïve about personal finance.
Maybe you’re now married, have a child and are still paying off student loans. Now it’s time to get serious about getting your financial house in order.
“Flexibility is so critical,” said Leonard, a former national board member of the National Association of Personal Financial Advisors organization and former president of the Los Angeles chapter of the Financial Planning Association. “It’s not buying a house. The key is getting into the habit of saving and building a good solid savings foundation.”

• Establish an emergency savings fund. This decade is full of surprises, some not so good, and can wreak havoc on your financial goals. Make sure you stash away three to six months of living expenses to harbor unforeseen circumstances. As your income and expenses grow, so should this fund. It also guards against going into debt in the worst-case scenario.

• Sign up for insurance. Renter’s insurance, disability insurance and life insurance are must-have policies in your 30s to protect against calamities, especially if you are married or married with children. It’s a no-brainer to protect your possessions cheaply if you live in a rental property. If you are out of work for an extended period, disability coverage will help cover your expenses after your workman’s compensation expires. Most companies provide only 60 percent of coverage. Life insurance can spare your spouse and children  financial ruin if your income suddenly evaporates. Price-shop for rate comparisons. As your assets accrue, make sure to adjust insurance coverage accordingly.

• Save for retirement. Even though most financial experts advise saving 15 percent of your gross income toward retirement, it may not be as daunting as that sounds. For starters, you have to take full advantage of your employer’s 401k options. Companies match an average of 4.1 percent of a participants pay, which attracts 87 percent of eligible employees. Profit sharing can average 8.5 percent of pay. After maxing out what your company offers, with or without matching money, open a traditional IRA account and dump pay raises, bonuses and other cash gifts into that account to make up the difference for tax-deferred compounding growth of principal.

• Also on the radar. Improve your credit rating and FICO score to at least 720; advance your career; evaluate your budget; plan your estate; establish financial goals; meet with a financial adviser; save for a home; and pay cash.

In Your 40s
Now that you’re paycheck is growing as a Generation X, you’re smack in the crossfire of having to save for your children’s education, your own retirement, caring for elderly parents, maybe buying a bigger house, reducing the lifestyle frills you used to enjoy and not giving in to the temptation of debt baggage. It’s empowering to have the earning power now, but it puts you on a tightrope of a financial plan high wire balancing act. Priorities, smarts and discipline have to kick into high gear.

• Eliminate debt. Of course you have a mortgage but make sure the interest rate is rock bottom of the shortest duration. If you’re paying 15 percent or more on credit card interest and have a $10,000 tab or more, pay it off month by month until it’s zero and defer savings plans in the meanwhile for you and your children. The interest payments are stocking your banks’ coffers, not yours. If you can’t pay for something with cash, don’t charge it; you can’t afford it. Break the bad habit of buying now and paying later; if you keep this up, there will be no later date to pay it off. Also focus on your outstanding college loans as part of your overall debt reduction strategy.

• Save for yourself first, not your kids. You’ll be in big trouble if you devote all your extra money to your kids’ 529 plan and not to yourself for retirement. They will have scholarships, loans and grants for their education, if the worst happens, but you won’t have that luxury. Whatever your retirement nest egg will be in 25 years is it; you want your savings to work for you from now until then with compounding.

• Update your estate planning. Keep in mind that 57 percent of adults in the country don’t have a will. Your assets are growing, you want to protect them and you certainly don’t want the estate in probate to decide who gets what. Make sure you update your beneficiaries about every asset account you hold and its current contents, statements, online passwords, how money and possessions will be distributed, etc. Most lawyers charge less than $1,000 for drafting a will, a power of attorney and a living will, or you can do it yourself online for a few hundred dollars with a company like legalzoom.com.

• Also on the radar. Settle into your career; continue saving for retirement; evaluate your financial plan; reduce debt; invest wisely; meet again with your financial adviser; update your insurance; track your net worth; and pay cash.

In Your 50s
You’re firmly entrenched in your career, your kids are on their own or in college, and the mortgage is close to being paid off. This is the decade to focus on you and your retirement because time is still on your side and you can play catch-up with your retirement savings, thanks to the federal government.
“Stop chasing your career dream,” advises Leonard, who has family living on Hilton Head Island. “And maximize your 401k.”

• Catching up with savings. Now that you’re in your 50s, you can save more tax-deferred or tax-free 401k, IRA, Roth IRA and, at 55, in your health savings (on health expenses with pre-tax monies) accounts. This year, you can contribute up to $24,000 in your 401k, which includes a $6,000 catch-up cap. The ceiling in IRAs and Roth IRAs this year is $6,500, including a catch-up of $1,000.

• Long-term healthcare insurance. You probably have targeted a retirement age by now, which is within your control. Good physical health 10 or 15 years from now isn’t, and it’s one of the greatest uncertainties of retirement living. If you wait another decade to consider long-term health insurance, you may not be eligible or it may be cost prohibitive. Consider hedging against the unknown of a serious illness, nursing home care that isn’t covered by Medicare, and the money it would sap from your nest egg. Look for an inflation rider in your policy so coverage would stay aligned with rising medical costs.

• Guard your investments. You likely have stocks, bonds, short-term cash investments and sub-categories like company stock in your retirement account. Generally, the closer you get to 65, the more conservative the allocations are. Growth takes a backseat to protecting your assets, and you should review category performance and the allocation breakdown annually. Make sure you have target-date mutual funds in your retirement account that automatically rebalances allocation to provide a financial safety-net the closer you get to retirement. Also be sure to examine your risk tolerance versus potential reward in all your investments.

• Also on the radar. Avoid debt; assess your parents' situation; evaluate your financial goals; think about long-term tax liabilities; and target retirement age.

In Your 60s/retirement
Your working life is winding down or maybe you’re already retired. Now’s the time to start taking it easy while letting your assets do the heavy lifting.
“This is a key decade,” Leonard said. “It’s all about tax planning.”

• Rethink everything: Be real and be honest with yourself. Think about downsizing and moving to an area with lower real estate taxes, utilities and cost of living. Figure out your real spending habits and whether or not you have at least seven times your salary in retirement savings. Don’t use a Ouija board to figure out what you really spend … take five years of bank statements and figure out your spending habits, deduct any big ticket expenses like the mortgage or car payments, and then average it out the total over five years. Now add up your total income (salary, assets, dividends, etc.) and likely tax implications. Do you still need life insurance to protect your family or are you holding onto it to leave something to your heirs? With your financial planner, don’t forget to review your plans for turning your assets into steady income as tax efficiently as possible. Don’t forget to factor in inflation with your real numbers. Now ask: Can I really retire at 66 as I had hoped?

• Applying for Social Security. Planning on filing at 62 because you need the monthly income just to get along in life? Can you wait financially until you're 70 to capitalize on the maximum allowable payout? Be mindful that if your start receiving your benefits early, they are reduced a fraction of a percent monthly before your full retirement age. If you can wait it out financially and expect to live a long life, then wait it out. Keep in mind that most people underestimate how long they’re going to live.

• Watch the spending. Most people overspend during their first four years of retirement and then settle into their planned budget. Travel, dining, gifting to children, expensive hobbies are common mistakes. Financial and workplace freedom can be liberating and a trigger for overindulging. Beware: Spending too much too soon drains your money pool and strips the earning power that money could have given you over the next decade or more.

• Also on the radar. Sit down with a financial adviser to discuss tax implications withdrawal strategy; think long term; evaluate insurance needs; get a part-time job; sign up for Medicare; and volunteer.