By the time someone finishes with school and starts their first full-time job, they’ve hopefully learned financial basics such as paying taxes, opening a savings account, and budgeting. These skills are needed for someone just to survive. However, at DWM, we want to see you thrive. When it comes to financial independence and peace of mind, it’s very important for you to set goals for yourself and make sure you accomplish them. That’s why we believe these milestones can provide great guidance to you as you continue to live and grow old. It’s important to note that there is no set course you need to follow; everyone is different.
Age 20 or earlier
- Get a paying job
- Once you start making money and using it, you begin to understand its value better. This can give you a good idea of what your ideal lifestyle would cost and encourage you to put yourself in a position to afford it.
- Take part in employer-sponsored savings plans
- It is never too early to start saving for retirement. Employer sponsored 401(k) accounts are a perfect way to begin saving for retirement as they provide a convenient, disciplined way to save for retirement with the benefit of tax breaks and generally are increased by employer contributions.
- Start building your credit
- A good credit score can give you better finance rates when buying cars and houses, open up more housing possibilities, and qualify you for higher credit limits. We suggest owning a credit card as soon as you can. It is important for you to use the credit card and to make sure your bills are paid in full and on time.
- Institute or continue a program of after-tax investments.
- By the time you’re 30, it’s a good idea to have money put away for investments or sudden expenses. An initial target is 50% of your annual income and then keep it going and growing. You never know what might happen in the future, so it’s beneficial to be prepared for anything.
- Increase your human capital
- This a good time in your life to be near completion of certifications and degrees in your profession. Putting time and money towards developing your skills is one of the best investments you can make. In addition, we believe education is a life-long pursuit.
- Consider meeting with a financial planner
- Now is a good time in your life to have a diversified investment portfolio so that your money is put to work. We suggest working with an experienced wealth management team.
- Beware of lifestyle creep
- In your 40’s you are beginning to approach your peak earnings years. Life style creep is the tendency to spend more as you make more. Be cautious of former luxuries becoming necessities as this is one of the biggest threats to your retirement savings. Make sure that a portion of the increase in your income results in increases in your savings and investments.
- Take action to protect your family’s financial stability
- Some actions we recommend you make, unless you have already started this earlier, include looking into a 529 plan (college savings account), consider adding life and disability insurance, and talking to your wealth manager about estate planning.
- Regular visits with a wealth manager- quarterly, semi-annually, or annually
- Now is a great time to redefine your short-term, medium-term, and long-term goals with a financial representative. Close monitoring of investment accounts is important during this decade as your finances become more complex. In addition, your wealth manager should help you review your income taxes, insurance and other financial matters.
- Pay off “bad” debts
- Paying off your student loans and credit card debt by the time you’re 40 or younger is necessary for financial independence and flexibility.
- Some debt can actually be beneficial to you and does not need to be paid off immediately. For example, mortgages can be considered “good” debt if you have a good interest rate. Benefits may include tax deductions and arbitrage—earning more on investments than the interest rate on the mortgage.
- Estate Planning
- Benefits of estate planning include reducing estate taxes, protecting beneficiaries and the ability to name your children’s guardian in the event of death.
- At DWM, we believe it is never too early to begin the estate planning process.
- Know where you stand on social security and IRA distributions
- You can start receiving social security at age 62 or delay until full retirement age (“FRA”) or even wait until age 70. Under current law, those taking social security before their FRA incur a 25% reduction in social security payments for the rest of their lifetime. Those waiting past FRA can get a 32% increase if they wait until age 70. With social security potentially running out of money in the next 12 years, timing of benefits is extremely important and should be reviewed with your wealth manager
- Consider a Roth conversion
- If you have a traditional IRA, now is a good time to consider converting all or some of it to a Roth IRA. Benefits include lifetime tax-free growth with no required minimum distributions.
Age 70 and beyond
- Enjoy your financial independence and retirement!
- However, at any age, you still need to…
- Monitor your investments and assets
- Review your long-term cash flow planning
- Plan for your taxes- both income and estate taxes
- Review your insurance
- Review and update estate planning documents
- Regularly meet with your wealth manager to get professional advice to help you protect and grow your assets and legacy!