Managing our finances is a work in progress – what works in our twenties won’t necessarily suit our forties, fifties, sixties or seventies. And that’s why it’s so important to align our financial strategy with our current stage of life. By understanding the different phases, we can build a secure financial future all the way through retirement. Here are a few points that will guide you on how to make your money work for you throughout your hopefully healthy and numerous decades.
At Labinsky Financial we examine all the components, including your short, medium, and long term goals, and future expected income and expenses. We listen to what you are saying, then work with you to set realistic goals and create a plan to get you there. Contact us so that we can help you optimize savings and maximize investment opportunities.
Your twenties: building the foundation
The twenties are a pivotal decade for laying the groundwork of your financial future. This is typically a period of getting established — starting your career, finding a place to live, and learning to manage your expenses. For many, the focus is on surviving and developing solid basic financial habits.
Start saving: Even if you can only save a small amount, getting into the habit early sets the stage for future financial security. In Israel, you are forced to save via the compulsory pension plans, but if you can increase your savings, you won’t regret it. Money you save when you are young will grow exponentially into very significant amounts over the decades, if you give compounding enough time to perform its magic.
Manage debt wisely: Whether it’s student loans or credit card debt, focus on paying it down. Avoid accumulating unnecessary debt and ensure that you can reasonably afford your mortgage, which is likely to be the best debt you will ever take out.
Your thirties and forties: growing and securing wealth
By the time we reach our thirties and forties, we are likely to be more established in our career and personal life. While expenses increase due to factors like raising a family or purchasing a home, this is the period to focus on maintaining discipline, prioritizing your expenses and starting to save for large lifestyle events like bar/bat mitzvahs and weddings.
Key financial moves to consider include:
Maximize retirement savings: Contribute as much as possible to retirement accounts and ensure your intermediate goals occupy part of your directed savings.
Invest strategically: Diversify your investments to balance risk and growth. Consult a financial advisor if needed.
Grow your income: While the expenses may feel overwhelming, your income potential is typically at its peak during these decades, providing an opportunity to significantly grow your financial portfolio if you consistently manage to spend less than you earn. Consider diversifying your income stream into side jobs or businesses that can add significant stability over the years to your income stream.
Your fifties: transition and planning for retirement
The fifties often mark a transitional phase in financial planning. With children becoming independent, many find their expenses shifting. This is the ideal time to ramp up retirement savings if you were late to the party, and solidify your financial plan for the years ahead.
Consider these strategies:
Evaluate your retirement plan: Review your current savings and estimate how much you’ll need to maintain your lifestyle in retirement. If necessary, up your contributions to meet your retirement goals. Tightening your budget and prioritizing retirement contributions can help you catch up.
Assess your investments: You might need to adjust your investment strategy to protect your savings while ensuring continued growth.
Think long-term: Prepare for potential healthcare costs by exploring long-term care insurance and other options.
The retirement years: sustaining your lifestyle
Entering retirement doesn’t necessarily mean we stop working entirely. Many choose to continue part-time work or pursue hobbies that generate income. Regardless of your choice, having a solid financial plan is crucial as it will give you the flexibility to decide when and how much to work.
Create a withdrawal strategy: Determine how much you can safely withdraw from your savings each year without depleting your funds.
Stay active: Working during retirement can provide not only financial benefits but also physical, cognitive, and social advantages. However, health considerations may impact your ability to work, so you need to plan accordingly.
Adjust your risk profile: Once you start withdrawing from your retirement accounts and your retirement budget plan becomes clearer, adjust your investment risk profile as necessary. It doesn’t necessarily mean you need to reduce stock exposure if your assets are projected to be invested for decades to come.
The bottom line
A while back, a dentist came to me for help with structuring his finances. Despite having a lavish lifestyle including owning a Rolls Royce or two during his working life, he found himself needing to continue working into his late 80s just to make ends meet. This true story highlights the importance of consistent saving and planning throughout your life. While it’s admirable to work later in life by choice, being forced to do so out of financial necessity can be challenging.
Adapting your financial strategy to your stage of life ensures you’re prepared for both expected and unexpected challenges. Start saving early, increase contributions as your income grows, and plan diligently for retirement. By doing so, you can build a secure and flexible financial future that will allow you to enjoy each stage of life to its fullest. Behatzlacha!
With continued prayers for the safe return of all of our hostages, the safety of our soldiers in all their missions, and the security of our nation.