How to Save and Invest at Every Age: A Guide for Every Decade
Your financial needs change as you age. What works in your 20s might not make sense in your 50s. This guide will help you make smart money moves in each decade of your life.
Your 20s: Build Strong Habits
Your greatest asset in your20s isn’t money—it’s time. The power of compound interest means that even small amounts can grow large over decades.
Key moves to make:
- Start an emergency fund with three to six months of expenses (Close to 60 percent of Americans would not be able to cover a $1,000 emergency expense with savings!)
- Pay down high-interest debt, especially credit cards. 36 percent of Americans have credit card debt rather than savings.
- Begin retirement saving with your employer’s 401(k) plan and try to contribute the maximum the employer will match if employer matching is an option.
- Open a Roth IRA if you qualify
- Build your credit score by paying at least the minimum payments on time.
“The biggest mistake I see young people make is waiting to invest because they think they need a lot of money to start,” says David Neuwirth, Senior Vice President at David Lerner Associates. “Even $50 a month builds good habits and grows more than you might expect over time.”
Your 30s: Balance Multiple Goals
Your 30s often bring bigger responsibilities, like homes and families. You’ll need to balance short-term needs with long-term goals.
Focus on:
- Increasing your retirement savings to 15% of income if possible
- Saving money for a home down payment in a high-yield savings account
- Starting college funds for children
- Upgrading your insurance (life, disability, home)
- Creating a will and basic estate plan
Your investment mix should still favor growth, with a substantial portion in stocks or stock funds if you can handle the risk. Get advice from an investment advisor with experience.
Your 40s: Maximize Your Peak Earning Years
Your40s are often your highest-earning years. Use this time to catch up if you’re behind on your saving plan..
Smart moves include:
- Maxing out retirement accounts
- Paying down your mortgage faster
- Consulting with an investment counselor to ensure you’re on track for retirement
- Avoiding lifestyle creep (spending more just because you earn more)
- Teaching your kids about money
“By your 40s, you should have a clear picture of what you want retirement to look like,” Neuwirth explains. “This helps you set specific targets instead of just saving a random amount.”
Your 50s: Pre-Retirement Planning
Your 50s could be your last full decade of work. This is the time to get serious about retirement planning.
Take these steps:
- Use catch-up contributions in your 401(k) and IRA
- Shift to a more balanced investment mix by considering rebalancing your portfolio
- Pay off all non-mortgage debt
- Consider long-term care insurance
- Plan for helping adult children or aging parents without risking your retirement
Start thinking about when you’ll claim Social Security. Waiting until age 70 can increase your benefit by 32 percent compared to starting at 62.
Your 60s and Beyond: Transition to Retirement
As you near and enter retirement, your focus shifts from growing wealth to protecting it.
Key tasks:
- Create a retirement income plan
- Apply for Medicare at 65
- Decide when to claim Social Security
- Plan for Required Minimum Distributions at 73 if you are a traditional IRA account holder
- Review your estate plan
Your investment mix should become more conservative as you age. But keep in mind you still need funds that can withstand inflation over a 20-30 year retirement.
At Any Age: Good Money Habits
No matter your age, these practices will serve you well:
- Live below your means
- Review your saving plans periodically
- Keep educating yourself on financial topics
- Avoid financial decisions while you are emotional
- Work with trusted professionals when needed
Do you need to adjust your financial plan based on your current age? The best time to start is now.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.