Investing for the future is a long-time commitment, and the sooner you begin, the better off you will be when saving for retirement. The way you approach investing should continuously change to match whatever stage of life you are in to ensure that your investments remain in line with your financial situation and life needs.
Investing Stages and Retirement Account Planning
Investing Early In Your Career:
Few people have expendable income at the start of their career, but that doesn’t mean that you shouldn’t make saving a priority. After setting aside the portion of your paycheck that is necessary for day-to-day living costs, set aside a portion of each paycheck to save for the future – no matter how small the amount.
- Before making long-term investments for retirement or other future goals, focus on creating a “rainy day” fund that you can fall back on.
- Consider short-term money market funds that provide better interest rates than standard savings accounts, and quick access to your money.
- Once you have a cash reserve, make sure to open a retirement account – whether an IRA or a 401k – and establish regular, automated contributions. If the money never reaches your hands you are less likely to spend it, and even the smallest savings contributions can become significant amounts by the time you retire through the power of compounded growth. At this point in your career you have the ability to be more aggressive by making investments that pay higher returns.
- If your company has a 401k plan that involves matching, make sure to at least contribute whatever amount your company will match so that you aren’t unnecessarily leaving money on the table.
- If/when you get a raise, make sure to increase your savings and retirement contributions.
Investing When You Get Married or Buy a House:
Making a major change in your life usually means a change in your financial situation.
- When buying a home, a large down payment and mortgage payments are likely to impact how much free cash you have for other things in your life – even retirement. If you don’t have the money necessary for a down payment, it may make sense to temporarily scale back the amount of money you invest for retirement until you have saved the money you need to purchase your home. Just be sure to raise your retirement contributions back up as soon as you are able to do so.
- Getting married usually means a second income, yet shared expenses. As a result, you will likely have more money to invest for retirement and the long term. Before getting married, you and your partner should sit down and determine your priorities for both the short term and the long term and then figure out how much you should be investing in both types of savings/investment accounts.
Investing Once You Have a Child:
Having a child means the need to prepare not only for your future, but for theirs.
- Make sure you have an updated will and life insurance policy that take into account your child’s future should something happen to you.
- Start a 529 fund with automated contributions when your child is born. As with your own retirement savings, because of the power of compounded growth the earlier you begin saving the more money you will have when your child is ready for college.
Investing in Mid-Career:
By the time you are in the middle of your career the odds are good that you’ll have a larger salary, but you’ll also have less time to save before retirement.
- Make sure your investment strategy still makes sense.
- It is time to scale back the risk levels within your portfolio and add less risky investments such as municipal bonds.
- If your children are out of the house and expenses such as college are no longer an issue, make sure to increase your savings for retirement.
Once retirement is about a decade away meet with a financial advisor to see if there are things you should be consolidating or steps to take to ensure a larger revenue stream when you retire.
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Alpine Bank Staff
Alpine Bank is an independent, employee-owned organization with headquarters in Glenwood Springs and banking offices across Colorado’s Western Slope, mountains and Front Range.
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