How you invest today will determine what you can spend tomorrow. Tomorrow, of course, being a figurative term to fit your specific timetable. The important concept to grasp is that wherever you are in your investment journey, the decisions you make today will affect lots of stuff in the future. The success of your journey will be very dependent on your ability to plan accordingly. So, let’s start this journey at the beginning.
Young and in Love and Totally Stressed out
Assume that you’re just starting out on this great journey. Maybe you’re recently married, planning a family and talking about buying a first house.
Start by getting some money saved for emergencies. A good rule of thumb is to have six to 12 months of living expenses set aside. Remember, a new car isn’t the same as replacing your income in an emergency. If a new car is in your plan, save for it in a separate account (the house down payment too).
Now, if all of this is a stretch on the budget, then maybe date night is dinner at home and streaming a movie instead of that trendy new restaurant.
If you have children and expect they’ll go to college someday, then a college savings plan should be in the mix. If that breaks the bank, don’t forget that doting grandparents love to (well) dote over their children’s babies. Birthday and holiday gifts to a 529 plan will go a lot further than the latest new electronic gadget.
Finally, if you are both working, you should both take advantage of your employers’ 401(k) plans, even if you save only a single-digit percent at this stage. You’ll be surprised at how fast the next 40 years will go. This is the “shoulda” you really don’t want to miss.
Now is also the time to begin funding a Traditional IRA or a Roth IRA.
Mid-career, lots of Options and the Grass may be Greener Over There
Now you find yourself a little on cruise control. You’re making pretty good money and you have choices. You can stay with your current employer, you can move to a new job or you can break out on your own and make your mark on the world.
What used to be your car savings account has morphed into your household piggybank and now has a bit more money in it: maybe enough to fund your startup idea, maybe you use it for those great vacations or the new pool…in the new house.
Your retirement plan at work is also on cruise control. You’re maxing it out and your employer’s match has really given the balance a welcome boost. And by now you’re probably making nondeductible contributions to those IRAs.
Wow the Last 40 Years Went by Fast
At your retirement party, a colleague explains that he’s already started taking Social Security early to make ends meet and that he’ll likely keep working past 72 – not because he loves it, but because he has to.
The investments in your kids’ 529 plans got them through college, with a bit left over for grad school, or for their children when that time comes. Your household piggybank paid for your children’s weddings and could fund a down payment on their first homes.
Those retirement plan accounts look like they’ll be able to finance the same standard of living you enjoyed while you were working. So, you can hold off claiming Social Security benefits until you’re 72. Your tongue-in-cheek lament to your spouse is that you’ll have to start taking required minimum distributions from your IRA at the same time.
Your more serious conversations, as you watch the sun set in those exotic tropical locations the two of you dreamt about when you were raising the kids, center on estate planning matters, like the legacy you’ll leave your heirs and the charities you can help.
What Does any of This Have to do With Investments?
The whole point of investing is to make sure that wherever you are in the journey, that the structure of your asset allocation and the investments you own are aligned with your goals.
Know what you’re investing for and match your investments to the timeframe you expect to accomplish various goals. Talk with one of our Investment Specialists at (800) 235-8396 to discuss creative ways to help you achieve financial success.