Gold for Your Golden Years

How to build wealth heading into retirement

No matter how much you enjoy your job, you don’t want to do it forever, right? Eventually, most of us want to be able to retire. Depending on your age, saving for retirement might be a bit trickier, but there are steps you can take to build wealth heading into retirement no matter how old you are or when you get started. Some of the advice holds true at any age, while the effectiveness of other strategies can vary from decade to decade. Following these guidelines should have you in good shape when the time comes to retire.

Through the Years

If you’re in your 20s at the outset of your career, it can be tempting to start spending as if you’ll never get old. You might have real money of your own for the first time and be itching to spend it. But you’re also young enough that roughing it a bit in some areas is something you can live with. You might want the most expensive new car you can afford or want to go on lavish vacations or otherwise flaunt your cash. While you don’t have to live like a hermit, and in fact treating yourself every once in a while is healthy and will help you stay on track, you can moderate some things. Maybe instead of dropping money on a car payment every month, you get by with an older used car for a couple of years. Depending on where you live, maybe you take public transportation while saving toward a goal. Set money aside for a nice vacation or dinner out by making sacrifices elsewhere. If you’re renting, you probably don’t need to take the nicest apartment your salary can buy. So, what to do with that cash you’re saving? Put some in a savings account so you have an emergency fund. You never know what could be coming. And though it might seem like a long way off, start putting money in a retirement account. If your employee matches 401(k) contributions, max out. It’s basically free money, a 100% return on your investment.

As you hit your 30s, you might encounter a lot of major life changes. You might get married, start a family, or buy a house. Or do all three. This is where those sacrifices in your 20s will start paying off. If you’re making enough to pay for a house in cash, it’s worth doing even if it’s just a starter home you know you won’t be in for more than a few years. You can build wealth without paying interest. If you can’t pay cash, buying a home you can afford is still a great investment, and affordability calculators can help you plan before you get in over your head. If you have a child or children, start a college savings plan like a 529 that allows you to withdraw money tax-free to cover college expenses when the time comes. With all those changes going on, it’s important to keep contributing to retirement plans, especially those with an employer match, and keep frivolous spending to a minimum. That doesn’t mean no family vacation, but maybe skip the private jet.

In your 40s, you’ll enter your peak earning years, but you might also be entering your most expensive years. The kids, if you have them, are getting bigger and college planning is getting more real. If you haven’t started the savings plan or put much in it, now’s the time to ramp that up. If you don’t have life insurance already, you need to set that up. You have to protect your family in case the worst happens. By all means, continue saving for retirement and don’t touch what you have already saved. Consult with a financial planner to help set long-term goals and stick with them.

As Retirement Approaches

By the time you hit your 50s, retirement is starting to seem like a real concept, and you want to check where you are in your plan. If you’ve been socking money away, you’ll appreciate your younger self more than you thought possible. If you haven’t, this is the time to start contributing as much you can to your 401(k), including catch-up contributions, which are allowed for people 50 and older. If you get a raise, put the extra cash straight into your retirement account. Your future self will thank you for it.

This last stage of building wealth heading into retirement is critical. You need to figure out how much you can spend per year when you’re retired and set a realistic timeline. If you have a lot of catching up to do, you might consider opening yourself up to investments with more risk but higher potential return in the medium term. Take a look at your assets and goals for retired life. What do you have that you can do without. What would you like to have that you’ll need cash for. Maybe it’s t time to sell the house and downsize. If you have a vacation home in a better climate, maybe you make a plan to sell the house and move permanently to the vacation home.

You can buy an annuity, either fixed or variable, that will provide income when you no longer have a paycheck coming in. This will also help you start thinking about distribution, the period when you start taking money out of those retirement accounts you’ve been funding. A lot of that money has been pre-tax, but Uncle Sam will come looking for his due when you take the money out. You’ll even have to start taking minimum amounts out when you hit a certain age (73 currently, 75 beginning in 2033). A financial advisor can help you strategize a way to minimize the tax burden and avoid a nasty surprise just as you’re ready to be finished with work forever. No matter when you start, there’s always time to build wealth heading into retirement.