A Decade-by-decade Guide to Retirement Planning

By Clifton Linton
Senior Writer

The good news is that Americans are living longer than ever; the bad news is that their retirement savings will need to last longer than ever.

A 15- to 35-year retirement is increasingly possible, says the Financial Planning Association in its brochure, "Planning for the Stages of Retirement."

Are you ready, financially?

Studies show that few people are. One reason is that for many, retirement planning is still a new skill.

How do you prepare? It helps to craft a long-term saving and investment plan early in life. But, even if you're late to the game, you can still join in. The work is just harder.

Here's a look at some of the issues affecting savers in each decade of life.

In Your 20s
Retirement is probably one of the last things you think about in your 20s. You're focused on building your career. You're learning how much you can earn and how fast you can spend it.

But, it's a good time to start thinking about retirement. While your salary may be too low to allow you to save much, you have time on your side. Think of yourself as a money-producing machine, said Frank Gleberman, a certified financial planner and principal with Century Benefits Group of Marina Del Rey, Calif. You can generate money in two ways: "you at work or your capital at work."

Putting your capital to work is an efficient way to build your nest egg.

You can take advantage of a powerful investment tool known as interest compounding. With it, the earnings on your investments buy new investments. Over time your money can grow exponentially.

For example, look at what happens when you double the number two, then double the result, and so on. The early increases are modest, but after 10 doubles, the result is large (2,048). Interest compounding is similar.

Retirement priorities:

• Get started saving. If your employer offers a retirement savings plan, contribute. If not, open an IRA.
• Try to put at least 10 percent of your income toward retirement.
• Stay out of debt -- credit card debt is like negative savings.

Investment strategy: When you're young, you can generally afford to be aggressive with your long-term investments. You're using investment growth to build your nest egg. But, pick investments that you're comfortable with. While financial planners frequently recommend stocks and stock mutual funds, remember you are the one who has to sleep well at night.

In Your 30s
Life's growing expenses (houses and kids) start to demand more of your earnings. Against these demands, your income typically rises.

The good habits you set today will help you down the road.

"If you are able, at a younger age, to (consistently) set aside 10 percent of your income, you will be able to maintain your lifestyle" in retirement, Gleberman said.

As a 30-something, time is still your friend.

Retirement priorities:

• Start doing some rough retirement planning. Think about the type of lifestyle you want.
• Pay off consumer debt and college loans. Debt reduces the amount you can devote to retirement savings.
• If you haven't begun saving for retirement, get started.
• Learn how to juggle increasing costs against your need to save for retirement.
• Try to save at least 10 percent of your income toward retirement.

Investment strategy: Continue to maintain as aggressive an investment strategy as you are comfortable with.

In Your 40s
Retirement becomes a tangible, rather than an abstract, concept. This is the first time many folks start seriously thinking about saving.

With 20 years to go until your 60s, time is still your friend. However, you have less of it. In your 20s and 30s, you could put away a modest amount and expect it to grow substantially by retirement. If you are starting now, you will need to put aside more to reach the same total as a 30-year-old could generate with less. It's time to knuckle down and become a disciplined saver if you haven't started yet.

For many, the cost of living continues to rise. Second homes and Junior's college tuition often compete for your retirement dollar. Be aware that your aging parents may become new dependents in your household.

Retirement priorities:

• Start doing serious retirement planning. Contribute the maximum to your retirement plan at work.
• Save in an IRA if you can.
• Figure out a college strategy for Junior. Ivy League or State U? Who will pay? Remember that each dollar you spend on your child's education is one less dollar for your retirement. There are loans and grants to pay for your child's education but not for your retirement.

Investment strategy: You still have a while to go before you'll need your money. Stick with an aggressive investment strategy that is in your comfort zone.

In Your 50s
Retirement is beginning to loom on the horizon. Time to get out the calculator and spreadsheet and crunch some numbers. Take your rough retirement plans from your youth and turn them into a more detailed plan. Figure out where you will live, how much it will cost, where your retirement income will come from, and when you will retire.

A child's college expenses, or caring for an elderly parent, may compete for your retirement dollars.

If you're currently in your 50s and looking at accounts decimated by recent market declines, the future may seem bleak. To have the retirement you want, you may need to consider working longer, scaling back your retirement expectations or saving more.

The last is a good strategy, said Scott Leonard, a CFP, with Leonard Capital Management of El Segundo, Calif. As you save, you actually reduce your current cost of living.

"The more you save, the less you spend, and you will move into retirement needing less," he said.

For example, suppose you earn $48,000 a year and save $8,000 for retirement. You are living on $40,000 a year. Suppose you raise your savings to $13,000 a year. That means you have learned how to live on only $35,000 a year. "Not only are you saving $5,000 more a year, that's $5,000 less you need to live on and $5,000 less (a year) that your portfolio needs to generate for your retirement," he said.

Retirement priorities:

• Put the max in your retirement plan at work and into an IRA.
• Take advantage of the catch-up contributions allowed by these plans.
• Try to contribute up to 20 percent of your income to retirement saving.

Investment strategy: It's time to think about shifting some of your retirement savings to more conservative investments, since you may need them soon. But don't sell all your aggressive holdings.

In Your 60s
This is a time when many folks transition from their career life to retirement life. That doesn't always mean quitting work. Some folks will continue working for the stimulation it provides. Others will work because they need the income, or because they want to delay tapping their retirement savings.

Retirement priorities:

• Two to three years before you expect to retire, start planning your transition.
• If you haven't done so already, create a concrete retirement plan.
• Determine when you are eligible to begin drawing retirement benefits from sources such as Medicare, Social Security, work-sponsored retirement plans and your IRAs.
• As long as you have earned income, continue saving in a retirement plan at work and in an IRA.
• Make a catch-up contribution, on top of your full contribution.

Investment strategy: Continue shifting your retirement savings into more conservative investments. However, don't sell all your aggressive investments.

Many workers "think their (investment) time horizon is the day they retire. Your time horizon is the time you are dead. For a 60-year old that could be still 20 years out," Leonard said. "Don't give up on stocks."

In Your 70s
You must now begin taking withdrawals from your IRAs and your employer-sponsored savings plan, provided you are retired. You can no longer save in a traditional IRA, but you can still save in a Roth if you have earned income.

Some living costs will fall, but others, such as health care, will rise. You may still be working.

Retirement priorities:

• Plan how you will tap your retirement savings. You don't want to drain them prematurely. Consider hiring a good financial planner to help you.
• Do some estate planning.

Investment strategy: Much of your savings should be in conservative investments. But, remember you may still have another 15 or more years in retirement. Hold on to some aggressive investments, to provide the savings growth you will need in your 80s and 90s.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.