Your Financial Future By The Decade

Your future actually just started. Are you on board? Even if the answer is “yes,” there could be a problem. If you don’t know where you need to go or where you should aim, how can you possibly know what you need to do to get there?

It makes some sense to give yourself some reasonable and proven benchmarks for your age range; clear and objective statements of what you should be doing and where you should be aiming. Let’s start with those in their 20’s, late Millennials.

Know one thing before you read on, the names for the generations, like the rough time periods of the generations, are arbitrary, unfair to some and often overly generalized, badly so. But the names have become icons of generational shifts, so rather than ignore the names, we will use them.

20’s – Late Millennials

Young adults born between 1987 and 1996 are in their 20’s at this time. By the generation-naming that is so common, that makes them Millennials.  Millennials, also known as Gen Y, are those born roughly from the early to mid-1980’s to the early 2000’s. Here is what late Millennials need to be doing and why.

Get on a budget. Financial Peace University at Idlewild Baptist Church is a great tool to learn budgeting and a lot more. Call Pastor Rob Taylor at 813-264-8717 or The Idlewild Foundation at 813-264-8713 for details. One goal with your budget is to reduce debt, especially high interest debt. Without the discipline that a budget provides, it is too easy to spend a little extra here and a little extra there.  Then all of a sudden, there is nothing left at (or even before) the end of the month. Budgeting works. Now is when you make your first life and financial plans and start living them. See the articles in Resources For You/For Young Adults. The steps for this decade are simple but sound.

Save. You need to start several different “savings funds.” The first savings fund you should have is an emergency fund. Emergencies happen in life. The car breaks down, the roof leaks, a job is lost, a serious illness interrupts your expectations, etc. Life happens!

How and where do you save it? Banks are safe with little risk and safe is not bad, and too much risk is far from wise, but these are the years when the most gains are possible. Small, or relatively small amounts saved now have the time to build up appreciation, market increase, or interest accumulation, depending upon the investment or focus. Short-term, the stock market is volatile and highly risky. But with the advantage of many years, the market is often the best hope for investment profits and real gains. Time smooths out the lows, filling in the valleys with some mountain tops. From 1970 through 2016, the stock market has averaged above 10%. In the same time, real estate has averaged slightly better. Savings accounts in banks has resulted in a net return of 0% or even less than 0% after inflation in the same time period.

Millennials should invest because time is on their side.

One of the greatest mistakes Millennials make is to invest too conservatively.  A 2016 analysis by Lindsay Larson, an assistant professor of marketing at Georgia Southern University’s College of Business Administration shows that 46% of Millennials believe investing is too risky, a much higher percentage than the older generations.  Many Millennials grew up in what is now called the great recession.  They have seen the losses but have not seen the gains. Over time, the gains of sound investments tend to outweigh the risks.

Buy a home. Studies show that more Millennials are waiting to get married and have children, often until their thirties. The same holds true with major purchases like a home. But if you plan to stay in the town or area where you are, the next investment (or “savings fund”) you may want to consider may be a home. Buy high enough to stay for a while; closing costs, realtor fees and moving expenses if you sell and buy up too frequently eat up a lot of the investment gains of owning a home as an investment. However, don’t buy so high that you can’t save for yourself and for the future.

If you don’t want to buy now or can’t afford a down payment now, start saving for the down payment. That is another savings fund you can start.

Save more. Yet another savings fund you should start is to begin tax-advantaged savings toward your retirement. Start an IRA, 401(k), 403(b) or other “before tax” investment. A 401(k) at your employer is a good starting place, especially if your employer matches some of what you invest. It is “free money” if you stay there long enough for it to become yours. And do not borrow from or cash in your 401(k). Let your savings sit. Let the economy work for you. In the short run, the market is uncertain; but over the long run, it can generate wealth without much effort.

Check out the compound interest chart in 8 Financial Moves to Make in Your 20’s at pages 4 and 5. Even a little now makes a huge difference over enough time. Start to save for retirement now!

Most Millennials say they will save, but at the same time, only about a third say they will spend less in order to save. That is where living well within your means pays off and works for you. Saving isn’t nearly as much fun as traveling and enjoying life. Why not have some fun now? In part, because of compound interest. A little fun depletes or eliminates savings at a time when you must start saving to get the real benefit of starting early.

So here’s the checklist for those in their 20’s.

• Start tithing, give to God. He should always be in your life and your plans. Read Luke 12:16-21.  Those are six powerful verses.
• Start living on a budget.
• Make financial and life plans.
• Make your first estate plan. Life is uncertain, to say the least. Plan for the worst and pray for the best is a safe approach. But you don’t have anything? Estate planning isn’t just for the old and it is as much about living as dying. Your estate plan is an opportunity you have to say to those who come after you who (and whose) you are through a personal testimony. Also, if you learn about estate planning early, you can avoid many expensive mistakes in property and asset ownership and titling.
• Start saving with an emergency fund of at least one month’s expenses. Make it your goal to build it to six months of your living expenses by the time you reach 30.
• Buy a home or start saving for a down payment on a home.
• Next, start paying yourself by saving for retirement, especially if your employer matches contributions. Your goal? By the time you reach 30, have a tax deferred fund in place with six months of living expenses in it.
• Be patient!  Patience is a fruit of the spirit and the rewards are high. Galatians 5:22-23.
• Stick with the plan. The benefits start slowly but they are there.
• As you near age 30, re-evaluate where you stand first with God, second, in relationships with others and third, in overall finances.

30’s – Early Millennials and late Gen Xers

Young adults born between 1977 and 1986 are in their 30’s at this time. Gen Xers were the generation before the Millennials. Their birth range is from the mid-1960’s to the mid-1980’s. Most who are in their 30’s are Gen Xers.

Now, there is a lifestyle shift. But before you look toward the future, look back. Do a review of your finances and financial management of the past ten years. Did you reach the goals of the bullet points above? If not, look back and look for reasons why you missed the goals. Did you change jobs? Did you have avoidable expenses? Did you have avoidable over-expenses? If so, why? Most often the flaws are in the execution. But, if the flaw was in your planning, adjust your plans to fit your present reality. Even as you may have to readjust, do not lose sight of the long-term goals and benefits; and do not become pessimistic. At the same time, be patient; in your thirties you just are not going to have what your parents had in their forties or fifties. It is called the accumulation of wealth for a good reason – it takes time to build up wealth and it takes time to acquire assets and “the good life.” Credit is not the answer!

Now, it is time to see the lifestyle shift. In your thirties, the realities of a mortgage, expenses of children, owning and maintaining a home, and saving for college for your children are very likely major financial responsibilities. Regardless, do not stop what you started during your 20’s, keep budgeting and saving. As you spend on your home, always remember that what you have in terms of furniture and furnishings is very temporary.

Among the top goals needs to be paying off debt, especially any remaining student loans. As always, start with the highest interest debt, such as credit card debt.

At the mid-point, by 35, your goal is to have saved twice your net income overall.

The median retirement savings for a worker this age range is near $45,000. So, what is the problem? That is easy to answer; not enough people in this age range are saving much, if anything, toward retirement. Many may be saving for college for children or are saving in the sense of paying their mortgage, but most are not saving at all. In this age range, only about one third of Americans are saving money in a 401(k), IRA or other tax-deferred retirement account. Be one of the wise one-third.

Keep saving in all of your funds. Your emergency fund should be growing towards the goal of one year of living expenses by the time you reach 40.

Keep saving towards your own retirement. This fund should also be above six months of your income. You are young enough to invest these savings in a bit higher risk investments than you will risk in twenty years. The potential gain is usually worth the increased risk. Treat your retirement savings as a means of paying yourself in the future. That is a bill you really want to pay now.

By the end of your 30’s, a good goal to set is to have at least a year and a half of living expenses saved in all of your “saving funds” combined.

So here’s the checklist for those in their 30’s.

• Reassess at 30. How did you do in your 20’s? What adjustments do you need to make? One of the main adjustments necessary here is to get back on that budget.
• Examine your estate plan from your 20’s. Has your family changed so that your estate plan is no longer any good? Do you need to adjust your bequests? Is a trust necessary now to protect assets for children? Are you giving enough to God in your estate?
• Your emergency fund should be close to six months of living expenses with a goal of one year.
• Your retirement fund should also be above six months of living expenses and rising.
• Start a new savings fund for college for your children. If you can, use a tax-deferred savings plan such as a 529 Plan. These college savings plans are set up by states and run by brokerage or mutual fund companies.  In a 529 Plan you save money and it grows tax-deferred. Florida offers you either a 529 Plan or the Florida Prepaid College Plan. Compare them at http://www.myfloridaprepaid.com/learning-center/savings-vs-prepaid-plans/. As with any savings, the earlier you start, the lower the burden in the years to come.
• Start a Roth IRA if you are eligible. A Roth IRA allows investors to use some of the IRA for an emergency should such a real emergency arise. Accounts such as a 401(k) plan results in penalties on persons who withdraw money from these accounts.
• Work on paying off your mortgage. This is your home we are talking about. While true security lies only in God, you should consider the benefit and reduced financial pressure when the mortgage is paid off. One tried and true means of shortening your mortgage life is to pay next month’s principle in addition to the present principle and interest. Yes, that is a lot of extra money, but the shortened life of your mortgage is worth the effort if you can manage it.
• You may have enough saved by now to give serious consideration to hiring a financial adviser. Don’t make a random or uneducated choice. You want someone who will pay enough attention to your financial future and generate wealth for you.  Is there a cost?  Of course, the answer to that question is yes.  But a good financial adviser may make you far more than the cost in the long run.
• Know that the financial efforts you are making are being observed by your children. As early as possible, involve them in your finances, especially in your giving. See The Generous Family in Resources for You/For Parents.

40’s – Gen Xers

Now, you are nearing or are at the age where your income is at its greatest. It is at this time that new strategies and steps can help your future. But again, start by reassessing where you are and how you have done. How did you do in your 30’s? If necessary, and it probably is, revise your plans and especially your strategies. Adults (sorry, we are no longer calling you young) born between 1967 and 1976 are in their 40’s at this time. You are also Gen Xers, the generation born from the mid-60’s to the mid-80’s. Gen Xers have had many other names, mostly insulting. You have been referred to less politely as the Baby Busters as well as Latch Key Kids.

As your earnings approach their peak, so should your saving. And don’t forget giving back to God as a part of your financial plans. By now you should be beginning to see a clearer picture of how God is working in and around you and this is a time to show your gratitude. It is also a time to show your faithfulness and to continue setting the stage for your children so that they see the blessing of a life of faithfulness.

Experts and financial planners agree, maximizing your earnings and savings should be your primary focus in your 40’s. Maximize your earnings. Consider prayerfully a lateral move if the job is secure, the working conditions are positive, and the income increase is significant.

Maximize the benefits of employment by maximizing employer sponsored retirement accounts such as 401(k)s and 403(b)s and use as many other tax-deferred or tax-advantaged investment plans as you can, including Roth IRAs and IRAs regarding income and Health Savings Accounts and cafeteria plans regarding health benefits. By now your emergency savings should be safely at one year of living expenses and your other retirement savings should be at above one year of income. Keep paying yourself by saving.

Now, in addition to maximum tax-deferred savings in your 401(k)s or IRAs, you may wish to consider adding a new savings fund, a fund of after tax dollars. This is in addition to your emergency fund.

One real goal you should have is to be out of or nearly out of debt by the time you are 50. By now you should be an expert at a world rarely used in a consumer-oriented market driven world; “NO!” Keep it up. With your spending low and your savings high, this is an attainable goal. Keep the long-term goal in the front of your mind; financial security and a safe and secure retirement.

So, here’s the checklist for those in their 40’s.

• Reassess at 40. How did you do in your 30’s? What adjustments do you need to make? One of the common adjustments necessary here is to get back on that budget. Add to that getting out of debt and maximizing your savings.
• Maximize your retirement savings, including after tax savings. These after-tax savings can come in handy to keep you in a lower tax bracket when you start drawing income from your tax-deferred savings.
• Pay off your mortgage and be out of debt. But that means that you may not be able to buy up and get that large fancy house! That is correct. It also means you may not be able to afford a high class new car every few years. Always focus on your true priorities and on what is most important to you – and never lose sight of God.  If you can’t get your mortgage paid off by age 50, have a solid plan for when you can accomplish that goal and know how you can do it.
• Have college fully funded for your children.
• Review your estate plan yet again. Look for areas were your bequests are in need of adjustment. Are your plans and wishes for such unpleasant topics as your living will and your desires for the decisions by your health care surrogate different now than 10 years ago? Does your estate plan, especially a trust you may have need to be changed due to changes in your family?
• Speak with your parents about their estate plans. Help them with their financial plans. The help you provide today may keep you from having to help support them in the future.
• You can still learn from your parents, especially from the mistakes they will admit making and will share with you. The most commonly admitted mistake was spending too much on “today” and not saving enough for “tomorrow.”
• Start thinking about your retirement, what are your dreams? Is God in those dreams and plans? Go back and re-read Luke 12:16-21.

50’s – Boomers

Adults born between 1957 and 1966 are mostly in the Baby Boomer generation, the post-war group born between 1946 and 1964.  This is a large population group and the numbers of Boomers (and what they are doing) is a major factor in economic news today.  The latest figures from the government should that on the average, 10,000 Boomers are retiring every day!

Some things change as you reach your 50’s, but some do not. One thing that does not change is your need to look back and see how you did in the previous decade. Did you meet your goals? If not, why not? Do you need to make adjustments? Was your spending wise? Did you save enough? Even if you have fallen short, remember, “better late than never.” Even lower savings than you wanted or expected will leave you in better financial shape than many. Keep saving. Keep budgeting, by now it should be a normal part of your life.

And then one thing that does change is that certain tax-deferred savings plans allow you to “catch-up.” Do it even if you have been saving all along. Your earnings are very likely far higher now than when you retire so your tax rate is likely higher than when you retire. Deferring taxes if you are able may make a lot of sense.  

Keep saving in an after-tax fund as well. By the end of your 50’s your overall savings should be at least four to five times your income. Unfortunately, figures from a 2015 study of the Government Accountability Office show actual savings are far lower, less than $120,000 for most in their 50’s. The study also shows that a shockingly high percentage have virtually no money set aside for retirement, with one 2014 government study showing 31% of non-retired Americans 55 to 64 have no retirement savings at all.

You may be nearing (or already in) the empty nest years. Of course, the trend has been for some children to return to that nest. You have hopefully taught your children well by example so that they can live independently.

What other changes can you make to help you “catch up”?

Downsizing is a real possibility for empty-nesters. Those extra rooms and empty spaces can be better used by a younger family than by storing old cloths and things.

For what is invested, re-evaluate what your investment risks are. You now have less time to make up market losses. The closer you are to your goals, the lower the risk you should be willing to take.  The closer you are to retirement, the more conservative your investments should become.

If you are looking at early retirement, look hard at such major ticket items as healthcare and the date when you can (and the date when you should) take Social Security. At present, if your health is good, delaying drawing Social Security is often still the best option. And consider what you are going to do with your time and your life.

So, here’s the checklist for those in their 50’s.

• Reassess at 50. How did you do in your 40’s? What adjustments do you need to make? Make this a time of deep reflection.  Look all the way back at your plans from your 20’s.  How accurate have you been?  Is any adjustment of expectations necessary?
• This is the time when a new and often unexpected financial responsibility sometimes steps into your life; your parents. As they age and become less capable physically and even mentally, they may need some help and assistance – yours. This is a part of honoring your father and mother that does not figure into many people’s plans.
• Continue your retirement savings, including after-tax savings.  However, now you may wish to make your investments a little less risky, or a bit more conservative, depending on your perspective and estimated date of retirement. While you were in your 20’s or 30’s, there was more time to recover from losses in the market.  Now, you have less time, so consider your risk carefully.
• Re-evaluate your estate plan. Your children may no longer need the protection of a trust, and may not even need your money. You may wish to focus on grandchildren. But even as you do that, do not lose sight of God. Read Giving to Your Grandchildren in Resources for You/For Seniors for a fresh perspective on your bequests and how you may wish to think about them.
• Now you need to seriously think about your retirement. A good retirement isn’t something that just happens. It requires planning and thought, at least it does if you want to retire well. What do you want to do with the additional time you will have? Do you have enough money set aside to accomplish those goals? There are Internet tools available to project your possible income; try them out. For assistance and ideas, call us at The Idlewild Foundation at 813-264-8713. This is an area where a skilled financial planner can provide great insight and assistance. Make sure that serving God is included in those plans.

60’s – Boomers

Adults born between 1947 and 1956 are squarely in the Baby Boomer generation, the post war group born between 1946 and 1964. They are the early Boomers, the ones born in the rush after the return of the soldiers from World War II and the Korean War and the massive shift of women from being in the workplace to being replaced in the workplace by the returning soldiers – learning to stay home and raise a family.

The old saying “It’s never too late” is not entirely true here. If you are in your 60’s and only starting now, it is either too late to make a large difference or at a minimum, far later than you needed to start to make more than a dent in the future. Why? Because it takes time to build using the benefit of compound interest and a stock market. A short window for financial progress increases the risk of the impact of a few bad years. To make large goals of savings, you will be forced to take increased risks to have a portfolio that matters to you.

Don’t give up, but if you must, do lower your expectations and even your dreams.

Exactly when to retire is often a tough decision. Social Security is a moving and uncertain target for the younger generations. Medicare is not any more certain, unfortunately. Here a financial planner can be of great assistance. And The Idlewild Foundation can also offer guidance and assistance; call us at 813-264-8713.

And what are you going to do with your time? Of course, there are grand kids and eventually even great grand kids, but they can’t fill all of your time.  God has been generous to you. Start thinking of the options.

So, here’s the checklist for those in their 60’s.

• Now you have to make some hard decisions – including exactly when to retire. Factor in the 8% increase per year of delaying until age 70 your receipt of Social Security benefits. If you are able, waiting until 70 to draw Social Security instead retiring early at 62 results in monthly benefits that are 76% higher.  That is a huge sum.  Work out far more accurately than you could many years ago what you need to live on in your retirement. Work out what you can expect to receive from your savings and investments over the years.
• Seriously consider downsizing if you have not done so already. Not being tied to a large home and the accompanying expenses and upkeep may not only save time and money but free you up to serve, give and travel. When you retire you will have more time (or so some say). Now, seriously plan on what you will do with that time. God did not bless you with your life, family, friends, income and time just to have you play golf, pull weeds, or watch TV. Now you have the time to serve your grandchildren and God with joy.
• Continue your savings as long as you can. But when you retire, it is time to start enjoying some of the money you have budgeted and worked so hard to save.  Enjoy it and use it to serve your God, after all, He made all of what you have accomplished possible.

About the Author

John Campbell has retired from a 40-year legal practice as a trial attorney in Tampa. He has served in multiple volunteer roles at Idlewild Baptist Church in Lutz, Florida, where he met Jesus.  He began serving as the Executive Director of the Idlewild Foundation in 2016.  He has been married to the love of his life, Mona Puckett Campbell, since 1972.