When you first embark on a career, retirement is very literally the last thing on your mind. Although we all hope to enjoy a long and comfortable repose after we have clocked out for the final time, in all likelihood, there will be as many as five decades between your first pay check and the first day of your retirement. And so, it’s unlikely that you’re going into your first post-college job with any thoughts as to what your plan will be for the years that will come after.
However, with any luck you will be a long time retired. There’s a pretty good chance that long time will be at least two decades. After you have hung up your… whatever equipment you use in your career, for a final time, you will ideally want to be secure, comfortable and ready to enjoy life in the knowledge that you’ll never again have to live to deadlines, attend more meetings that could have been emails, or write more memos that people won’t read. If you want to maximize your retirement, it’s best to prepare for it at an early stage.
The question is: can it ever be too soon to prepare for retirement? Below, we’ll look at what you can do at different stages of your career to feather the nest. And we’ll answer whether it can ever be “too soon”, taking all of the possibilities into consideration.
Can you prepare for retirement in your 20s and 30s?
It’s not 100% unheard of to retire in one’s 20s. You pretty much need to be a high-flying trader or a sports professional to do it, but it does happen. So if you can retire so young, you can certainly begin to plan, and put those plans into action. Much of what you can plan for depends on staying in the same job – or at least with the same employer – for at least some time. Indeed, some 401k plans don’t even permit you to participate until you are over the age of 21, or older. At this early stage, it is worth recognizing that any serious intent to start preparing for retirement should involve conversations with your employer.
Essentially, the goal of retirement at any age is to have as much passive income as possible, and you’re going to have more of that the earlier you start saving. To this end – and before you have progressed to the level of monthly expenditure you’re likely to face in your 30s and 40s – it’s a good idea to find out what contributions your employer will make to your 401k, and how much you’ll need to put in to trigger the maximum employer contribution. If you start contributing in your 20s, and keep those contributions up, there will be a significant nest-egg waiting for you when the time comes to retire.
A key point here is that you should not make these contributions if they will leave you problematically short of money in the present. Hedging on the future is only financial good sense if you are able to handle all your expenses comfortably in the present. It’s easy to see the attraction of keeping an eye on the future, but you shouldn’t forget that it costs a lot of money to be poor, so only set aside what you genuinely can spare. If, on the other hand, you are putting aside as much as you can in a 401k and still have some to spare, it is worth looking into an Individual Retirement Account (IRA) as an additional nest-egg.
If you do want to realistically prepare for retirement this early in your life, there is one other tip that you should take to heart. Extravagant purchases are largely incompatible with maximizing your retirement funds. There is no reason to buy a 50” TV if a 40” will be sufficient (and there are few circumstances where it wouldn’t be). Recognize the difference between spending what something is worth – a genuine high-quality washing machine may cost more than a budget model, but will last longer and need less maintenance – and spending in order to live lavishly.
Should you prepare for retirement in your 40s?
The question above is largely rhetorical: Yes, you should prepare for retirement in your 40s. Bear in mind that the average American intends to retire when they are 62. Leaving aside whether that is a realistic prospect or not, this means that by the time they turn 40, they are as close to their intended retirement date as they are to their 18th birthday. They are, in other words, halfway through their proposed working adult life. Every day that passes is counting down towards that stated retirement goal. So there should be no question about the importance of preparing for retirement, ensuring that compliant ERISA Wrap Documents are filed with the necessary people, and getting serious about saving.
The first thing to bear in mind is that as you enter your forties, if things are going as intended you will be earning more than you ever have before, and the temptation to enjoy this wealth will be considerable. Even if you have financial dependents, your forties are usually when people look towards enjoying more of the spoils of a successful career. But there are other priorities to consider at this point in your life. The first of these is your health.
As you get older, the likelihood of encountering a significant health issue grows. It’s not for nothing that most family doctors will recommend a health check-up for people turning 40; among other things, it’s the recommended time for a prostate exam in any man with a history of prostate issues in their family. Even if you’re otherwise healthy with a fairly spotless family history, attention should turn in this decade to ensuring that all medical costs can be covered. Whatever the gold standard is for health insurance from your provider, you should be as close to it as possible – because medical expenses at any stage can wipe out your savings in next to no time.
Another underrated way of preparing for retirement is to take the chance to financially educate your kids. Most parents recognize that they will need to save their kids from financial stricture at least once per kid, but you can lessen the likelihood of this happening, and the severity of it if it does happen, by making them aware of best practices as they enter their teens. Of course, most parents try to impress upon their kids the importance of spending wisely, that’s a given – but as they get older they are better able to understand concepts like consumer debt and credit ratings. They will understand that although your love for them is infinite, your ability to rescue them from debt can’t ever be.
How to prepare for retirement in your 50s
As you enter your sixth decade, and what on average will be your last full one as a worker, finalizing retirement plans becomes of fundamental importance. By now you should have a fair idea of some fairly crucial answers to important questions, such as:
- Where do you plan to live after retiring?
- How much money will you need to see out your retirement?
- When exactly do you want to retire?
For some people, retiring abroad is a dream – and if you’ve saved assiduously, it’s one that can come to fruition. Indeed, it might be a sound financial decision, too. Your savings will go further in places like Spain, the Dominican Republic, or Costa Rica than they would in the United States, and in each of these places (and others whose cost of living is lower than the US) you can still enjoy a considerable standard of luxury. As long as you can make arrangements for loved ones to visit you, and are able to return for regular visits, it can be a joyous postscript to a life of hard work. And it can answer question 2 for you, as well as helping with question 3.
Additionally, this is when you’ll need to make sure all of the important details are in order, clearing paperwork with your employers and combing all of your documents ahead of the day you walk out of work and begin a period of well-earned freedom.
So is it ever too early to plan for retirement?
The truth of the matter is that planning for retirement changes the closer you get to the big day. When it’s visible on the horizon, it’s about the finer details, crunching the numbers, and getting practicalities in order. When it’s merely a concept that’s far off in the future, it’s about making sure the numbers can be as big as possible. As soon as you are able to make money from your work, you are old enough to consider what you’ll want to do after work. As long as you bear in mind that the future can always change at the drop of a hat, and are ready for that to happen, it’s never too soon to prepare for retirement.