50 year financial planning tool
Just came a cross a great article on Budgets Are Sexy.com recapping Money Magazine’s thoughts on how we can stay on track with our financial plan at every age. Here’s their thoughts:
“Here’s how Money Mag thinks we can stay on track:
- Age 22: You should be contributing at LEAST 3% of your salary into your company’s 401(k) plan. Even better if you put in more and your employer matches over that 3% line!
- Age 25: Start socking away $150/mo, and push it up with every raise (I totally agree – esp to avoid that lifestyle inflation AND before you start missing any new money hitting your account ;))
- Age 27: Now that you’re probably on to job #3 within the last 5 years (the average according toMoney), make sure you’re rolling over your original 401(k)s or at least putting them into a main IRA account. Whatever you do, DO NOT CASH THEM OUT! Mainly because it hurts your retirement funding in the long run, but also because you’ll then get hit with a TON of penalties and fees for withdrawing too early. Better to avoid the whole thing if possible.
- Age 30: You should now have ½ your yearly salary saved up through all your retirement accounts. (Looking back to my 30th birthday Net Worth Update (December of ‘09), looks like I had$137,181 saved up! 2x my-then salary – woohoo!)
- Age 31: Make sure you’re negotiating your next big promotions that you tend to get around this stage of your career… something I used to suck at 🙁
- Age 34: If you’re thinking of taking time off to raise your kids, keep in mind you’ll need to increase savings to 17% to get back on top once you’re at work again (up from the 13% of salary they say you should be doing at this point). They also recommend maxing out a Spousal IRA during these times which comes out to $5k every year you decide to take off.
- Age 35: As you start investing outside of your 401(k), it’s now a good idea to pick up index funds to help limit your fees going forward.
- Age 40: You should now have 2x your annual salary saved up within your retirement funds. (That’s 4x what you needed to have 10 years ago when you were 30 – yikes!)
- Age 42: Stop putting on pounds and start working out (I know – sounds random here, but I guess in the long term you save more money by staying fit?)
- Age 45: Refinance your 30-year mortgage if you haven’t done so already (And in this day in age, you might have already done it like 3 times! Haha…)
- Age 50: You should now have a good 4.5x your salary saved up (or 3.5x if you plan on working ‘till you’re 70), and are now eligible to make catch-up contributions of $5,000 into your 401(k) plan (and an additional $1k in your IRAs). Also apparently now is a good time to start buying used cars over new ones every 5 years and then invest your savings… but I say do that from day #1!
- Age 58: Discourage kids from moving back home for long – you need to focus on finances (Not only does that sound a lot easier that it probably is, but why NOW do you need to focus on finances? Haven’t you already been doing that for the past 40 years according to this plan? Jeesh.)
- Age 60: You should now have 8.1x your pay saved up. (Why the 0.1 I don’t know ;))
- Age 62: Wait to collect Social Security! Your benefit will grow 8% each year you delay up until you hit 70. (IF there’s any money left ;))
- Age 63: Downsize to cut housing expenses like taxes, insurance, and upkeep (I plan on doing that wayyyyy sooner than my 60s… maybe even in the next year?
- Age 65: Try and work 2 more years at a desk, or part-time job. The chances you won’t run out of money in retirement would then get bumped up from 70% to 85%.
- Age 67: If you squeeze in 1 more work year, your odds of money lasting will now increase to 90%.
- Age 70: Register for a home swap at HomeExchange.com to save on travel. (I don’t know why you have to wait until 70 to take advantage of that, though?)”