Mapping out your financial future can be daunting, especially if you only have a vague sense of what you want to accomplish.
It can be useful to consider financial milestones to help you chart out your journey from college graduation through retirement. Here’s a look at some common savings goals by age to help you orient yourself and build a plan.
Savings Goals for Your 20s
In your 20s, people are often just out of school, starting a career, and getting their life in order. As if that wasn’t enough, challenges like student loan debt or credit debt may face them. Now is the time to set financial goals, consider an investment strategy, and start building healthy financial habits.
Paying off high interest debt
If you have any high-interest debt—debts of 7% or more—you might focus on paying it off. High-interest payments can cost you a lot over the life of a loan.
Credit cards, which often allow minimum payments that are much less than the total balance due, can be particularly costly as interest on the balance accrues. The more money going toward high-interest debt, the less you can focus on your savings goals.
Building emergency savings
At this age, people are often just getting on their own feet and might not have a lot of extra cash to stock away. Establishing a rainy day fund can be a useful savings goal. Generally, emergency funds are about three to six months worth of expenses. This fund can help cover emergencies like unexpectedly replacing a car transmission.
Your emergency fund provides a cushion of cash should an unexpected bill come up or should you lose your job. Since you never know when you’ll need to access your emergency fund, consider saving it in an easily accessible vehicle, such as an online bank account. SoFi Checking and Savings® is one option, where account holders can save and spend in a single place.
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Saving for retirement
The earlier you start investing for retirement, the longer you can take advantage of the powers of compounding interest—the returns you earn on your investment returns.
Compounding interest helps your investments grow exponentially. Consider taking advantage of any retirement accounts your employers offer, such as a 401(k). If your employer doesn’t offer a 401(k), there are other options, such as an IRA, where you can save for retirement in a tax-efficient fashion on your own.
Savings Goals for Your 30s
In your 30s, people are often more settled into a career path and may be thinking about other goals such as purchasing a house or having kids.
More saving for retirement
As your income grows and retirement gets closer, consider increasing the amount you’re setting aside for retirement. If your employer offers a match to your 410(k) contributions, taking advantage of the match is a wise move.
After all, this is essentially free money. And these matching funds could be worth as much as 6% or your income.
Buying a home
If you’re thinking about buying a home, focus on saving for a down payment. The amount you will need to save will depend on housing prices in the area in which you’re looking to buy.
A larger down payment can make it easier to secure a mortgage loan and can also mean that you pay less interest, which will save you money over the life of the loan.
Also, lenders may require borrowers to have mortgage insurance if they’re making a down payment smaller than 20% , which is an added expense to the home buying process.
Setting up college funds
For those with children, another consideration is saving for their college education. One possible way you could do this is with a 529 college savings plan that can help you save for your child’s tuition and other education related expenses. Try not to neglect other long-term goals, such as retirement, while saving for this. It is possible to do both!
Savings Goals for Your 40s
As you enter your forties, you are likely entering your highest earning years. If you have your high interest debts behind you, you can devote your attention to building your net worth.
Keeping an eye on your emergency fund
The amount of money you needed to cover six months worth of expenses in your 20s is likely far less than what you need if you have a mortgage to pay and children to support. Make sure that your emergency fund grows with you.
Make sure that your emergency fund grows with you.
Protecting your savings
One way to do this is by making sure that your assets and your person are properly insured. Home and auto insurance protect you in the event that something happens to your house or you get in a car accident.
If you don’t already have life insurance, this type of insurance can provide a cash cushion to help your family replace your income or cover other expenses should you die. But, it is important to know that waiting until your 40s to take out life insurance could be more expensive than taking it out when you are younger.
Savings Goals for Your 50s
In your 50s you’re still in your top earning years. You may still be paying off your mortgage, and your kids may now be out of the house.
Taking a closer look at retirement savings
As retirement age approaches, continue contributing as much as you can to your retirement account. When you turn 50, you are eligible to catch-up contributions to your 401(k) and IRAs.
These contributions provide an opportunity to boost your retirement savings if you haven’t been able to save as much as you hoped up to this point.
But even if you have been meeting your savings goals, the contributions allow you to throw some weight behind your savings and make use of tax-advantaged accounts in the decade before you retire.
Continuing to pay off a mortgage
If you think your monthly mortgage payments may be too high to manage on a fixed income, consider paying off or refinancing your mortgage before you retire.
Goals for Your 60s
As you enter your 60s, you may be nearing retirement age. But when it comes to saving, you don’t have to slow down. As long as you have earned income, you might want to keep funding your retirement accounts.
Consider long-term care insurance (Just a note: The American Association for Long Term Care Insurance recommends getting LTC in your mid-50s). But if you haven’t already done so, your 60s may be a sensible time to secure long term care insurance.
Health insurance doesn’t generally cover in-home care or the cost of a nursing home facility if you get sick and can no longer perform day-to-day tasks, such as dressing yourself or bathing alone.
The cost of long-term care can be thousands of dollars per month, which can quickly eat away even the most robust nest eggs. Long-term care insurance can help cover these costs, protecting the retirement savings you worked so hard to build.
Everyone’s personal timeline is different. The milestones you hit and when you hit them, may vary depending on your personal situation. For example, someone graduating from college with $50,000 in student loan debt is at a very different starting point than someone who graduates with no debt.
Or, though someone might be able to buy a house in their early 30s, others may live in a more expensive city and need more time to save. No matter your starting point and your situation, the important thing is to have a plan and stick to it. Having a plan can set you on track to meet your goals at each decade in your life.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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