Alcotsmith

Jun 7, 2021

10 min read

Financial planning through every decade of your life.

Whether you are in your 20s, playing an electric guitar/drums in a rock band, or fishing by the creek in your 60s, it is never too late for financial planning.

As you age, your lifestyle changes along with your spending habits. Every decade has its unique challenges and blessings. You need to make slight adjustments and plan your life accordingly. Easier said than done, right?

Most often, these are the few questions that come to mind.

  1. When can you afford to take the risk?
  2. What’s the ideal age to plan for retirement?
  3. When should you play it safe?
  4. Is there a way I can take a calculated risk while enjoying maximum returns?

Anxieties of the uncertain future can give you sleepless nights. That is precisely why we will dive deep into this and dissect each stage of your life — decade by decade.

  1. Financial planning in your 20s.

Youth is when most people choose to spend freely and enjoy life. A little fun never hurts anyone, but overspending will mean fewer savings for the future and for difficult times.

At the same time, you need to be in that frame of mind to start financial planning. Does that mean we need to hire retirement planning experts? Well, if you are making good money, there is no harm in doing that. However, for most people, a cautious approach and sound investments can pave the way for a secure future.

  • Invest in yourself — When you are in your 20s, it is ideal to invest in yourself. Acquire new skills or invest in higher education like a master’s/Ph.D. degree. The knowledge, life experience, and growth in human capital will lay the foundation for your future life. It won’t be easy for you to do so in your 30s or 40s when you have financial/family obligations.
  • Get yourself a piggy bank — Get into the saving habit. If you work somewhere, check if your employer has a provident fund or a pension fund where you can divert a part of your earnings. It also depends on the country. For example, the Cayman Islands government makes it mandatory for employees to contribute at least 5% of their earnings towards the pension plan. Even employers have to contribute a certain amount to it. Not only this, but you also get an option to diversify your savings and earn more returns. If you don’t have such an arrangement in your country, consider a fixed deposit scheme, equity-linked schemes, index funds, etc. Consult an investment expert if you are unsure about such things.
  • Learn to take some risks — When you are in your 20s, it is the best time to take some risks. This advice holds true for investment decisions and also life in general. When it comes to investments, abandon the conservative approach. You have plenty of time to grow your savings; it is best to invest in equity funds.

Apply the same approach to life as well. Plan thoughtfully, devise a strategy and begin a startup or a business venture where you can explore your creativity or area of interest. As youngsters, we often fail to think of the future and see the bigger picture. You may have to make some sacrifices, but it will pay dividends in the long run.

Even if you are happy working as an employee in a private company, look for better opportunities every few years. Find a company that stimulates intellectual and financial growth.

2. Financial planning in your 30s.

The 30s is the phase of your life when you need to be more careful and cut down on risks. Instead, you should focus your attention on debt management and efficient planning.

  • Debt planning — In the 30s, you must manage your debts cautiously. Be it student loans, car loans, personal loans, mortgages, or medical bills; you need to figure how to pay them off and become debt-free. It might sound confusing here, but you need to have an action plan. Decide each loan’s priority and address it accordingly.

Do not default on any of the payments because it will disrupt your financial planning and prove to be a setback. If possible, try to pay off the lower interest loans first. Although, this doesn’t mean you have to ignore vital loans like a mortgage or car loan. At any point, don’t borrow more than you can pay. Keep in mind your monthly income and plan everything wisely.

  • Insurance cover — When you are in your 30s, you need to become mature and prepare for the unexpected. However, many people act like they are immortal. Don’t be one of these people. Make sure you have health insurance, car insurance, life insurance, etc. As you age, you earn more and invest more.

There is a lot at stake, and one unpleasant incident can cause an upheaval in your life. To avoid such uncertainty in life and guarantee a better life for your family, you need to take insurance and health arrangements seriously.

  • Retirement savings — By your mid-thirties, you may be earning a handsome salary with decent investments. Hopefully, you are saving up for retirement. Diversify your investment portfolio. Don’t invest all your money in equity funds; putting all your eggs in one basket can backfire.

Select a few companies that you trust and invest there. Go global, think beyond local options. Spread the risk, and the rewards will follow. Apart from stocks, you can also invest in commodities, exchange-traded funds, and real estate investment trusts.

At the same time, don’t go overboard with the investment. Stick to the ones you are confident of and not go berserk by investing in hundreds of dubious investment vehicles. Also, it requires a great deal of time and effort to manage such an enormous portfolio. Hence, it is wise to invest only as much as you can handle.

If you are an entrepreneur or a business person with a medium-sized enterprise, think about setting up an IRA or SEP so that you can have a substantial amount of money by the time you retire. If you require assistance in this regard, you can consult a retirement planning expert.

3. Financial planning in your 40s.

They say health is wealth. Whoever said it was a wise man, no doubt about it. The 40s is a phase of your life when you look after your health, wealth, and business/career. There is no room for complacency at this stage of life; a small mistake could cost you dearly.

  • Wealth building — The 40s is when your earnings are the maximum. Now, the focus has to shift from saving to building wealth. Don’t get me wrong, savings are still essential, but wealth building needs to be a higher priority. Ensure that your investments are in congruence with your future financial goals. Place strong emphasis on growth assets.
  • Avoid unnecessary spending — Over time, from your 20s to 40s, you may have made some foolish decisions. Although you can’t do much about those, you need to learn from your mistakes and move forward. However, you can slash unnecessary expenditures like clothing, entertainment, eating out at restaurants, pricey mobile plans, alcohol, beauty products, etc. By making minor changes to your lifestyle, you can cut down on unnecessary spending and improve your financial situation to a certain degree.
  • Look after yourself — Now that you are in your 40s, you need to come to terms with reality. You are not a youngster anymore. Stress, work pressure, and physical strain can take a toll on your body. Apart from financial planning, it is also necessary to take care of your health. Don’t let the mid-life crisis get to you.

Avoid risky investments and luxury spending. Most importantly, enjoy sound sleep and indulge in moderate exercise to keep yourself healthy. Yes, this is also related to financial planning because you can only devote time to financial planning if your body functions properly.

4. Financial planning in your 50s.

You have crossed the 40s and stepped into the 50s. You need to sit back and analyze all your retirement plans. Of course, you have ten years but remember that you have other responsibilities too. In this decade, you can re-examine your strategy and make adjustments if necessary.

When you stop working post-retirement, you will have to rely on your savings and investments to lead a comfortable life. Are you ready for retirement? Let’s discuss how you can plan for it.

  • Planning for your retirement — Now that you know that you need to be actively thinking about your retirement, ask yourself the following questions.
  1. How much have you saved so far?
  2. How much are your expenses right now?
  3. How much would your expenses be post-retirement?
  4. How much income will be generated through investments?
  5. Am I ready to manage unexpected expenses in the future?

You need to prepare for your post-retirement life. Use a retirement calculator to assess the expenses, and if you think your current plan won’t be able to manage such expenses, change your strategy. You have ten years to plan for it unless, of course, you plan to retire before the age of 60.

Think of cutting down on expenses and looking for alternative sources of income. Maintaining a diversified portfolio is something that you should never forget.

  • Long-term care planning — Most people don’t think of care planning in their 50s, but it might be too late by the time you reach retirement age. After 60, you may not even be in the mindset for struggle, plus it is not advisable to undergo any stress at that age.

Examine the risks and challenges related to caring planning. It may be hard to obtain a favorable insurance policy or the required cover after reaching 60. Sort out everything in your 50s so that you relax later in life.

  • Think about your family — At the age of 50, you are still surrounded by people who have expectations of you. You may have aging parents who require your support and children who depend on you for higher education.

It is crucial to think about the quality of life you can provide for all. For their welfare, you need to plan well in advance and develop a plan of action. Education and healthcare planning can be expensive. You can’t afford to take them lightly. Before anything else, you need to have an open, one-on-one conversation with all your family members before making any decisions.

5. Financial planning in your 60s.

Now that you have done all the hard work, it is time to relax and reap the benefits of the past years.

  1. Transform savings into retirement income — All through these five decades of your life; you finally get to enjoy your retirement life. However, contrary to what people think, there is still some work to be done. You have to turn savings into retirement income.

This is one of the most complex decisions in life, and they require elaborate planning. The reason being that you stop working or don’t work as much as you used to. However, the money needs to be flowing in at all times.

Interestingly, nobody can predict the future. You may live to the ripe old age of 80 or more. Longevity is a good thing, but it also increases the risk of expenditure like health care, travel, not to mention taxes. You need cash for everything, healthcare, daily essentials, and also for those odd emergencies.

If your health permits, continue working or take up something less strenuous. Claim social security or government benefits as late as possible. It will help you get a higher amount later. To plan all of this, you need to ask yourself these questions.

  1. How much income will you generate?
  2. What’s the exact age when you plan to retire?
  3. When should you claim social security?
  4. Do you have/anticipate any potential health issues?

When you answer these questions honestly, you will have a clearer picture to help you plan your retirement better.

2. Re-examine life, work & other goals — Retirement life is a lot more than financial planning. It is one of life’s most crucial phases. You need income to accomplish your retirement goals while enjoying a stress-free life. You should have a clear idea as to what you want in life post-retirement. Think about what you expect from life and in which direction you want to head. Would you stop working, opt for part-time work, freelancing, or something else? Being single post-retirement has its unique challenges, and the same applies to married people.

The critical factor is to keep yourself occupied with something or the other. Pursue a hobby that you wanted to for many years, and if it pays well, then there is nothing like it. In old age, happiness and sanity are as important as financial security.

3. Estate planning — In the event of your death, your family should not suffer. One of your vital responsibilities as an individual should be to ensure the security of your family after your demise. Ideally, you should be planning for this in your late 40s, but by 60, the plan should be crystal clear. Think about the following points.

  1. Do you have insurance & do you require additional insurance?
  2. Is your estate planning documents in order?
  3. Are all your assets appropriately titled?

Most importantly, conduct a beneficiary review, particularly when all the assets turn into retirement income.

Final Thoughts

As seen in this blog, financial planning should be an integral part of your life. There is no thumb rule as to when you should start retirement planning. We have provided you a rough plan to approach financial planning, but it also depends on the individual and his circumstances.

Some people choose to delay financial planning until the 40s or later, while some are very focused right from their 20s. Make the right decisions at the right time, and life would sail smoothly all along the way.

If you choose to retire overseas, financial planning is even more important because many countries require you to meet specific criteria. Fortunately for me, I have a son who works as a retirement financial advisor in the Cayman Islands. Thanks to him, my retirement life is peaceful.