Financial advice through (your) ages, part II – Rochester Post Bulletin

Family members, father, mother and a son, sprouts on stacks of coins on a table.
Family or child trust fund concept : The image depicting grantor establishes a trust fund to provide financial security to an individual e.g. grandchild

William Potter/Getty Images/iStockphoto

This month, we look at The Professional Career Stage (30s and 40s, hopefully). The Pre-Retirement Stage (your 50s and 60s, hopefully). And The Retirement and Financial Independence Stage (your 60s and beyond).

Check out Part I: Those Investing Universals. Your Foundation Stage (up to age 20 or so). And Your First Career (your 20s) .

The Professional Career Stage (your 30s and 40s, hopefully).

Be debt free by 30.

“Try to be debt free by 30. Student loans and credit cards should be minimized or gone completely. The next 10 years should be focused on paying off the mortgage.”

(Maxwell T. Weisheipl, PrimeSource Funding)

Make your plan. Grow your wealth.

“This Professional Career Stage is when a person is entering into their professional career, after education or experience needed is completed, and is when wealth, and responsibilities, begin to really grow.

A spending plan during this stage will not only include priorities and saving money, but will also include taking care of dependents and planning for everyone’s future. An emergency fund is critical during this stage and should include at least three to six months of an entire household’s living expenses.

Having money in savings is key, but that alone may not be enough to achieve future financial goals and provide for retirement. Now is an important time to put money into investments such as an IRA or an employee-sponsored retirement plan, if offered. If your employer has a retirement plan and provides an employee match, contribute at least the amount of the employer match to help your investments grow. The sooner investment contributions are made toward retirement, the more it will grow in the future. Research investment and retirement plans or meet with a financial advisor to determine how to best accomplish financial goals.

At this stage it’s important to have a good working knowledge of all benefits and insurance to protect assets, wealth, and dependents. Having adequate life, accident, and disability insurance to provide for a family or dependents is crucial.

Have a plan to save for larger, future expenses like a home, a vehicle, health needs, vacations, or children (their needs and possible future education).

Managing debt is also paramount during the professional career stage. Having a good, working spending plan is key as those in this stage may have a mortgage, a vehicle loan or loans, student debt, credit card or other loans, and having a plan for all of that is vital.” (Jackie Urban, Altra Federal Credit Union)

Budget. And know your cash flow (and expenses).

“By age 30, you should be working on reducing your debt, including student loan debt and revolving debt such as credit card balances. Also, you should be contributing to your business retirement plan at or above the employee match and have a Roth IRA set up and funding it monthly or annually.

The best thing to know and practice is budgeting—at any age, but especially when you are starting out. As easy as that sounds, about 70% of the individuals I talk to don’t know how much they make and about 80% don’t know their fixed monthly expenses. We need to know our cash flow. Split your bills between the paychecks over the month, then use the excess money to fund your Roth IRA and emergency fund. If there’s anything that we all should have learned from the pandemic, it’s to have that emergency fund.”

(Jill Minette, Sensible Divorce Solutions)

Make a good investment … in your home.

“Between ages 30-50? Make your payments with no lates. Keep good credit. You are building the equity in your home that you can use later for other investments or consolidation of debt. During this time you will probably upgrade to a higher cost home and move out of your first home. You will also want to make sure this is a good investment as you may sell again in approximately 10 years to downsize. During this time you may want to refinance to 15 years to make sure your home is paid off before retirement.”

(Roxanne Hellickson, Hancock Mortgage Partners)

Keep the equity of your home in real estate.

“At this stage of life you may be selling your first home and purchasing your second home. You’re now a Move-Up homebuyer. Reasons for this change include a growing family, relocation for new employment, or an increase in income and desiring a newer or larger home.

For this type of move, I recommend focusing on maintaining financial wealth by keeping the equity of your home in real estate. For example, some may think that they will get ahead financially by using some of the proceeds from their home sale to pay off a car or what we would call a ‘depreciating asset.’

Whether you are buying a second home or refinancing, I recommend keeping your appreciating assets in another financial category than depreciating assets and continuing to grow your equity by using the proceeds towards your next home, making improvements or acquiring another property.”

(Debra Quimby, RE/MAX Results)

Keep consulting.

“Many 30-45 year olds are most likely still balancing paying debt and saving funds while big life changes have occurred, or will be: marriages, divorces, growing families, etc. In this stage there should be more income growth, or possible changing of careers. The path in life is not typically straight, there will most likely be swerves along the way. Continue to consult with a financial advisor on big financial decisions.”

(Heather Donovan, Sterling State Bank)

Start saving at 20 percent.

“With a solid financial foundation built, individuals typically transition into the Accumulation Phase in their 30s, 40s and 50s. During this phase, careers start to take off and income hopefully begins to consistently exceed expenses, meaning individuals’ ongoing savings rate should be at least 20% of their gross income.

During this phase, we recommend individuals first maximize contributions to their employer-provided retirement savings plan (e.g., 401(k), 403(b), or 457 on a tax-advantaged basis, and then begin funding a taxable investment account at a low-cost, discount brokerage firm like Charles Schwab or Fidelity.

Success during this phase is a function of consistent savings year-over-year at or above the 20% target, as well as proper portfolio construction and diversification that grows the principal over time while minimizing losses during significant market downturns.

Typically, investors can afford to be more aggressive with their stock/bond mix early in the Accumulation Phase (a 75/25% stock/bond mix, for example), while transitioning to a more conservative mix (a 60/40% stock/bond mix) as they near retirement and the Decision and Deployment phases.”

(Matt Morehead, Carlson Capital Management)

Save. Invest. Contribute.

“These are often the Family and Career-Building Years. Set up an estate plan and, if you have children, begin investing in their education. After purchasing a home, establish savings for maintenance and have adequate insurance. Continue to build savings, invest, and contribute to your retirement plans.”

(Sokha Yous, Mayo Employees Federal Credit Union)

Pay down that debt.

“As we get into our 40s and 50s, we should be working to pay down any debt that we have, i.e. mortgage debt. If we still have student loans or credit card debt, this needs to be eliminated/paid off. Let’s not make excuses here. When we get an income tax return, we want to put ourselves in a better place with those funds and paying off debt will do that.

We should be putting a higher percentage into our qualified retirement account with our employer and maximizing our Roth IRA. Clients ask how much they should be putting into their qualified retirement account at work. Well, if you have put in up to the employer match at work, then maxed your Roth IRA, you should start increasing the percentage in your retirement account at work from 4% up to 10% or more depending on your income and expenses. The key is alway controlling expenses.”

(Jill Minette, Sensible Divorce Solutions)

Pay off that mortgage.

“Paying off the mortgage faster and earlier is not at all easy for most of us. But if one can somehow do it, it certainly makes the best financial sense. With mortgage payments over with it becomes easier to save.”

(Nita Khosla, Edina Realty)

Save three times your salary in retirement.

“Have 3x your salary saved in a retirement account by the time you reach your 40s. If you’ve been putting money towards your Roth IRA/401(k)/403(b), evaluate if it makes sense to now switch to pre-tax savings.”

(Natalie Slagle, Fyooz Financial Planning)

Invest in property.

“Buy an investment property/second home. Want to snowbird in Phoenix? Start a 15-year mortgage and rent the property out. At 55 it’s paid off and ready for you to retire.”

(Maxwell T. Weisheipl, PrimeSource Funding)

Look after your kids. And your parents.

“You are officially in the sandwich generation. You have your parents and children to look after. It’s important to start having conversations about money with both generations:

Your parents: Check to see if they have an estate plan and long-term care insurance. Ask about their end-of-life wishes (funeral, health care, leaving money/gifts behind). This can be a sensitive subject for some families, so we recommend asking for a moderator to help facilitate the conversation.

Your children: create a save, give, and spend plan with allowance or their first paychecks.”

(Natalie Slagle, Fyooz Financial Planning)

Find a work-life balance.

“This phase may mean you have to focus on saving for children’s’ education and also retirement planning/saving. Then you can work on transitioning to where one can enjoy more control over one’s work life, have a better work/life balance and use the funds one has hopefully saved by then to do the things one has always wanted to do.”

(Nita Khosla, Edina Realty)

The Pre-Retirement Stage (your 50s and 60s, hopefully)

Don’t compromise your future vision.

“Those in this Pre-Retirement Stage have more than likely accomplished many early financial goals and may experience more freedom in their financial planning, but the journey is not over.

The Pre-Retirement stage is the time to think about retirement and to not compromise that vision of the future. Understanding all the costs of retirement, including medical needs, taxes, fees, long-term care, and living expenditures all need to be considered.

It’s also imperative to know where one is at financially at this stage and to research all forms of future income through disbursements, savings, and social security to achieve a healthy lifestyle in retirement.

When preparing for retirement, it’s also recommended to turn to more conservative investment vehicles to keep future retirement funds safe from unexpected market volatility. Moving money from investments that are riskier but could provide more returns to investments that are lower risk will help ensure that planned retirement money is better protected and available when moving into the ‘golden years.’”

(Jackie Urban, Altra Federal Credit Union)

Add additional real estate to your portfolio.

“Owning a second home, either as an investment for your retirement portfolio or as a vacation home, is an option many buyers are taking advantage of.

Second home purchases are on the rise as the pandemic has influenced how people work and where they choose to live. Some are even purchasing vacation homes that they rent through services such as Airbnb or HomeAway while they are not occupying the residence.

According to Lawrence Yun, the chief economist at the National Association of Realtors (NAR), ‘Vacation homes are a hot commodity at the moment. With many businesses and employers still extending an option to work remotely to workers, vacation housing and second homes will remain a popular choice among buyers.’

Additionally, the NAR reported that the median existing home sale price in vacation counties also grew faster than the rest of the country, increasing 14.2% compared to 10.1% in non-vacation home counties.”

(Debra Quimby, RE/MAX Results)

Meet with the experts.

“Many 45-60 year olds are typically getting closer to having less debt to pay, and looking forward to retirement planning. Annual meetings with a financial advisor are important at this stage in life. Meeting with an estate attorney is important to update and/or establish your will. An estate attorney should be able to help you with asset preservation, in cases where you and/or your spouse are in failing health. These strategies will protect your assets while following federal and state guidelines.”

(Heather Donovan, Sterling State Bank)

The Retirement and Financial Independence Stage (your 60s and beyond)

Keep setting goals. Buy good slippers.

“Those at the Retirement and Financial Independence Stage can enjoy the fruit of all their earning, planning, and hard work over the years.

While retirement can be a relaxing and rewarding time, there are still some financial goals that may need to be completed. During this stage, planning may be required to determine the best way to pass assets onto others or to benefit a favorite charity.

Having an estate plan that includes a will, power of attorney, and healthcare power of attorney will be beneficial for everyone involved.

Understanding social security benefits, Medicare and other medical costs, and having a spending plan that allows for a more comfortable retirement are essential during this stage of financial wellbeing.

Getting some comfortable slippers and a relaxing chair isn’t a bad idea either.”

(Jackie Urban, Altra Federal Credit Union)

Lower your payments. Enjoy life.

“Once you reach 60, and need to refinance or purchase, I would suggest going with 30-year for contractual lower payment (no prepayment penalty) and enjoy life!”

(Roxanne Hellickson, Hancock Mortgage Partners)

Minimize taxes, maximize benefits.

“At 60 and older, most people are retiring or slowing down in their career. This is the point you have worked to get to, and be able to reap the benefits of your retirement savings.

Your financial advisor will advise you where to strategically pull funds from for your expenses once you are retired. This is done strategically to help you pay the minimum in taxes and get the most benefit out of the diversification of your assets.”

(Heather Donovan, Sterling State Bank)

Don’t go it alone.

“We deem the five years before retirement until the five years after retirement as the Decision Phase.

This is the critical period when individuals need to make several significant, and oftentimes irrevocable, decisions about their financial future.

Do they have enough accumulated to retire safely without risk of outliving their money? When should they start Social Security and what type of Medicare supplement should they select, if any? If they have an employer-provided pension plan, like Mayo provides, should they take that benefit as an annuity or lump sum? What should their investment allocation look like as they start to live off their portfolio with no dependence on earned income?

It is during this critical phase that we highly recommend individuals get professional help from a Registered Investment Advisor who can provide unbiased perspective and help navigate these difficult decisions. The stakes are simply too high to go it alone during this critical phase, and individuals can unknowingly and permanently hurt themselves without proper guidance.”

(Matt Morehead, Carlson Capital Management)

Determine expenses. Adjust accordingly.

“In those Early Retirement Years, have a clear idea of your expenses during retirement and adjust your savings, investments, and retirement contributions accordingly. Strive to have your mortgage paid off. Review and update your will and estate plan. In those Later Retirement Years, update your estate plan regularly and each time you purchase or dispose of large assets. Continue to invest to outpace inflation.”

(Sokha Yous, Mayo Employees Federal Credit Union)

Don’t just survive. Thrive.

“The Deployment Phase should be the fruitful and joyful culmination of properly navigating the Foundation, Accumulation, and Decision phases.

When the prior phases are handled properly, individuals enter the Deployment Phase from a position of strength and can use their wealth to its full potential, whether investing in experiences before their health declines, helping children or grandchildren in finding their footing and easing their financial path, supporting their favorite charitable causes in significant ways, or likely a combination of all of these.

When done right, the Deployment Phase becomes about thriving, not surviving, and about establishing a lasting legacy and impact. It should be the gold at the end of the financial rainbow after a lifetime of solid financial habits and decisions through each of the previous three phases.”

(Matt Morehead, Carlson Capital Management)