Financial Strategies by Generation (for Young, Middle Aged, and Older Adults)
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by Military Families Learning Network
Service members, military retirees, and their families cross a variety of ages and life stages, but saving for retirement should be a priority no matter what your stage of life.
Below is a description of recommended financial strategies for military families in three different age groups:
Young Adults (18-39)
- Make compound interest work for you by putting time on your side. If you save $50 a week from age 22 to 65, you’ll have almost $1 million, assuming an 8% average annual return. To learn about investing, visit the Cooperative Extension investing home study course, Investing for Your Future, at www.investing.rutgers.edu.
- Don’t live beyond your means using credit. Not only will you owe a lot of interest, but you’ll tie up money that could otherwise be invested for future financial goals. Compound interest is your enemy if you make minimum payments on credit cards. A $5,000 balance on an 18% APR credit card will take 16 years to repay with minimum payments and you’ll pay $4,567 in interest charges, which is almost twice as much as you borrowed.
- Keep adjusting your finances as life events occur. For example, enroll in the Thrift Savings Plan (TSP) retirement savings plan when you start working and buy life insurance when you have dependents. Build and maintain an emergency fund of at least three months’ expenses for unforeseen events.
Middle Aged Adults (40-54)
- Continue to make compound interest work for you, especially if you’re making up for lost time. If you save $200 a week from age 45 to age 65, you’ll accumulate about $510,000 assuming an 8% average annual return. For additional “catch-up” strategies, see these tips for late savers.
- Ramp up your college and retirement savings by decreasing household expenses. Take advantage of catch-up contributions available to persons age 50+ for individual retirement accounts (IRAs) and the Thrift Savings Plan.
- Keep adjusting your finances as life events occur. For example, if you have not yet written a will, living will, and/or durable power of attorney, do so now. Review your life insurance needs and beneficiary designations periodically and plan to pay off your mortgage before retirement.
Age 55 and Older
- Upon leaving paid employment, create a “retirement paycheck” with withdrawals from invested assets. Many experts advise withdrawing no more than 4% to 4.5% of assets annually to insure that you will not outlive your money. This amount should then be adjusted annually for inflation. Example: someone with $300,000 of savings would withdraw $12,000 (4% of $300,000) in year one and $12,360 (12,000 + $12,000 x 3% inflation rate) in year two, etc. Keep some stock in your investment portfolio throughout retirement to hedge inflation.
- Take required minimum distributions (RMDs) from retirement savings from tax-deferred retirement savings plans beginning at age 70 ½. For additional information about RMDs, see the Rutgers Cooperative Extension Web site http://njaes.rutgers.edu/money/ira-table.asp.
- Keep adjusting your finances as life events occur. For example, begin making plans to transfer untitled personal property to heirs and consider the purchase of long-term care insurance. Get help from professional advisors (e.g., financial planner and estate planning attorney) as needed.
Saving for retirement can be challenging at any stage of life, but by aligning your actions with your retirement strategy, you can become a successful Saver and look forward to a secure retirement. Set a goal. Make a plan. Save automatically.
Written by Tammy G. Bruzon
Published: 22 October 2014