Time can be one of your most valuable assets when it comes to saving and investing to fund your path onto the most important milestones in life.
An early start setting aside slices of your earnings into building wealth for retirement, to purchase a home, or to fund your or your child’s education gives you the best opportunity for your money to work longer for you.
Whether you work for yourself or someone else, staking your investment strategy today – no matter what age you begin -- will pay dividends down the road.
The benefits of investing early and often are clear:
Benefits of investing early, often
- You stay ahead of inflation
- Helps you build wealth
- Gets you to retirement (or early retirement)
- Can help you save on taxes
- Meet other financial goals
The Employee Benefits Research Institute’s spring 2022 Retirement Confidence Survey found that, despite the Covid-19 economic aftershocks and rising interest rates, 7 in 10 Americans age 25 and older are confident they eventually will have enough retirement savings socked away to retire comfortably.
Yet, the same survey uncovered that a third of workers and half of retirees cited concerns about rising living costs and debt impacting their ability to retire securely.
Andrews Federal Credit Union understands that, with thoughtful planning and a disciplined savings approach, over time you can make your career and retirement years financially fruitful for both you and your family. Try our retirement savings calculator or calculate your net worth to get you started.
Invest for life’s phases
One long-standing investment rule of thumb is to allocate your investable sums based on your age. By that rule, investors subtract their ages from 100 to arrive at the percentage of their portfolios that should be invested in equities, like stocks. So, for example, a 27-year-old should have a portfolio 73 percent of which is invested in stocks.
With more Americans living longer, some advisers recommend using age 110 or 120 to arrive at a more reasonable investment ratio.
Investing in early years: 20s and 30s
Investors who are in their 20s and 30s likely have launched into their careers, maybe even harbor plans to start a family. It’s for them that financial advisors urge a 70-20-10 investment ratio: 70% invested in stocks; 20% in bonds and 10% in cash.
An early start building their nest eggs allows investors to take advantage of compound interest, whereby the interest on your initial stake is reinvested to build exponentially faster and bigger returns.
For those with access to an employer-sponsored 401(K) plan, investing in one is an ideal way to sock away over the long term a portion of their paychecks pre-tax. Better still is a 401(K) where the employer matches workers’ contributions up to a certain amount.
Just be sure when you change jobs to roll over your 401(K) into your new employer’s plan, or other qualified investment plan. Investing in Individual Retirement Account (IRA) offers another way to build retirement savings tax free.
Young investors with families likely want to start saving to buy a new or larger home or to fund a child’s education. They should consider enrolling in a state-sponsored college savings plan. Investing in U.S. savings bonds is another low-risk, affordable option.
Remember to set up an emergency fund – typically equal to at least six months of household expenses -- either in a federally insured savings account or short-term share certificate you can quickly tap in the event of a job loss or health setback.
Investing in middle years: 40s and 50s
By your 40s and 50s, you probably have paid down your mortgage enough to have some equity in your home, and hopefully have minimal credit card, auto loan and other outstanding debt. This is an ideal time to rebalance your investment portfolio, with the goal of minimizing risk top of mind.
At this stage, advisers recommend for investors in their 40s a 40-50-10 investment ratio, with the equity investment ratio 30% and 60% in bonds or fixed-income investments for investors in their 50s. With retirement around the corner, this isn’t the time to put big chunks of your nest egg at risk.
Investing in Your Golden Years: 60s and older
Once you reach your 60s, your primary focus should be on preserving your nest egg. Recommended investment ratio: 20%/70%/10%. On top of your mandated minimum withdrawals from your 401(K) or IRA, your retirement income is likely to be stretched with monthly Social Security and/or defined benefit payments.
Investing funds beyond those you need monthly should be safely parked in less risky products, such as tax-free municipal and federal bonds, or in money-market accounts.
You need an investment partner
Obviously, not every investment scenario can be fully explored here, given the myriad personal factors and circumstances that will weigh on your options.
Just know you don’t have to travel the road to long-term financial security alone. Let one of Andrews Federal Credit Union financial advisors partner with you to devise an investment strategy that is sustainable through all of life’s phases.