Money through the decades

Planning for retirement is a long-term program. A well-prepared retiree shouldn’t just turn in his key card after only a week, a month or even a year of analysis and planning for post-career needs. Retirement requires decades of making down-the-road decisions about investments.

Planning for retirement is a long-term program.

A well-prepared retiree shouldn’t just turn in his key card after only a week, a month or even a year of analysis and planning for post-career needs. Retirement requires decades of making down-the-road decisions about investments.

“Time is your greatest ally for a couple of reasons,” said Greg Olenick, a financial planner at Edward Jones’ Everhard Road NW office. “For one, the more time you have to invest, the greater the growth potential you have for your investments. And, second, by investing for the long term, you help reduce the impact of short-term volatility for your portfolio.”

With that need of foresight in mind, here is Olenick’s advice for each decade of working life:

In your 20s:
It’s important to get involved in 401(k) programs and other investment opportunities as soon as they become available to you.

“I tell people in their 20s to ‘pay yourself first,’ ” said Olenick. “Bear markets may represent good buying opportunities. When stock prices are down, you may be able to buy more shares, and the more shares you own, the greater your ability to build wealth once the share prices rise.”

In your 30s:
Bulk up on your 401(k) contributions when it’s possible.

“The amount you can afford to put into your 401(k) plan depends on your earnings and other circumstances, but you should at least strive to contribute enough to earn your employer’s match,” said Olenick. “Otherwise, you will be walking away from free money.”

Job changes also can require revisiting your investment decisions, Olenick noted.

“You may well be looking for new job opportunities, but if you are close to being fully vested in your 401(k), you might consider waiting a few extra months or even a year to take a new job so you can leave with the money your employer has contributed.”

In your 40s:
Most homeowners dream of freeing themselves from their mortgages early, but making bigger mortgage payments might not be the best investment strategy, cautions Olenick.

“On one hand, there is no denying the psychological benefits you’d receive from paying off your mortgage,” he noted. “However, you may want to consider putting any extra money into your investment portfolio to help as you work towards your retirement goals. Work with your financial adviser to determine what might be appropriate for you. Money saved (on a mortgage) might not equal more gain from investments, long term.”

In your 50s:
Olenick advises older workers not to panic over market volatility, even if retirement has started to seem more real and closer at hand.

“It always is difficult and usually futile to try to forecast the markets over the course of an entire year, but try not to overreact to whatever ups and downs we may experience. Instead, continue pursuing an investment strategy that’s appropriate for your goals, risk tolerances and time horizon,” said Olenick.

Bear markets won’t last forever, he explained. “So, while you might not particularly like looking at your investment strategy during a decline, you can take some comfort knowing that such downturns are normal features of the investment landscape.”

“No one can predict precisely how long a bear market can run, but typically, they’ve been much shorter than bull markets,” Olenick said.

In your 60s:
When retirement is within your view, you should “maintain a realistic expectation” about how your investments are likely to perform over the final years of your employment.

Don’t look for last-minute easy money and become surprised or even stressed when it doesn’t come.

“After five years in which the S&P 500s returns have averaged almost 14 percent per year, we may well be in for a period of more typical returns, possibly in the 5 to 6 percent range,” said Olenick.

As you arrive at retirement age, you might focus more on money of the future than cash today, said Olenick.

“You may consider delaying taking your Social Security,” he said. “You can start taking Social Security as early as 62, but your benefits will be permanently reduced unless you wait until your full retirement age, which will likely be 66 or 67. Your payments can increase if you delay taking your benefits beyond your full retirement age, up to age 70.”

While women can and should follow much of the same common sense financial advice as men when investing, they may face gender-based issues, as well, when pointing toward retirement.

Those investment problems begin with women often having less money to invest because of wage disparity during their working careers, said Jennifer Twiddy, a financial adviser for Edward Jones and the investment company’s women and diversity inclusion specialist for her region.

“Studies show that women employed full-time earn 80 percent of what their male counterparts earn,” Twiddy said.

She noted that women also face the probability of decreased earnings because they often are their family’s major caregivers.

“Women typically take more time away from the workforce to raise children and later in life to take care of aging parents. These absences can result in lost wages, lower Social Security benefits and fewer contributions to their 401(k) or similar retirement plans.”

These factors can be heightened when coupled with the fact that women tend to live longer than men, according to statistics from the National Academy of Sciences of the United States.

“What can women do?” asked Twiddy. “We generally tell women that any time their pay goes up to increase their contribution to their 401(k) or similar retirement plan.”

Twiddy said that some studies show that men sometimes invest more aggressively than women, but “not necessarily more successfully.”

“Women need to invest wisely, but don’t ignore the need for growth,” Twiddy said, suggesting that women determine the percentage of growth-oriented investments in their retirement and other investment portfolios by considering their “individual investment goals, risk tolerances and time horizons.”

“It also is important for women who are older to maintain a sustainable withdrawal rate so they don’t risk depleting their retirement accounts too early.”

Women cannot wait until near retirement to make investment decisions, Twiddy said.

“You need to be proactive.”