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 common 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 you may be just out of school, starting a career, and getting your life in order. As if that wasn’t enough, you may face challenges like student loan debt or credit debt. 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 consider doing everything you can to clear it. High-interest payments can cost you a lot over the life of a loan.
Credit cards, which often allow you to make minimum payments equal to much less than your balance total, 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
Since you’re likely just getting on your feet and may not have a lot of extra cash to sock away, consider first starting a rainy day fund equal to three to six months of expenses. This fund can help you cover emergencies like unexpectedly having to replace the transmission in your car.
Your emergency fund provides a cushion of cash should an unexpected bill come up or should you lose your job. Consider putting money you may need in the near future in a cash management account, like SoFi Money®, where you can earn interest, but still have quick access to your savings.
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, you have likely settled on a career path and may be thinking about larger 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 in retirement savings. If your employer offers a match to your retirement account contributions, you’ll want to take advantage of that as much as you can.
After all, this is essentially free money. And these matching funds are frequently worth as much as 6% or your income.
Buying a home
If you’re thinking about buying a home, you can start 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
If you have children, consider 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. Don’t 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, especially as the stakes get higher as you age.
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 can make 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 saving 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’re likely 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 now may be a great time to take it out.
Health insurance doesn’t 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.
Having a Plan—No Matter Your Starting Point
Your milestones and when you hit them will depend largely on your personal situation. Consider that 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.
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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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