Your 20s: Open an IRA account
In this decade, you likely have your first job and can begin socking away some money for retirement. But before doing so, make sure you have enough cash to pay for 3 to 6 months' worth of living expenses, in case an emergency arises. If you set up a retirement account and then withdraw from it to pay for emergency expenses, you may be subject to taxes and a penalty payment.
If your company offers a 401(k) plan, that should be your first choice, especially if your company matches some of your contributions. If you turn down the option to contribute to a 401(k) plan that matches, "You're giving away free money," Guffey says.
You also can open an individual retirement account, or IRA. In 2016, you can contribute up to $5,500.
If you can't save enough to maintain both a 401(k) and an IRA, go for the 401(k) because contributions are automatic, pretax and subject to matching, Guffey says.
Your 30s: Consider a Roth, adjust asset mix
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If you open an IRA in your 20s or 30s, you'll want to consider a Roth IRA. Unlike a regular IRA, you don't receive a tax deduction for contributions to a Roth. But when you withdraw money from a Roth IRA during retirement, it's all tax-free. The money you withdraw from a regular IRA is taxed as regular income.
So if your tax rate is likely to be higher when you withdraw money from your IRA than it is now, you're better off with a Roth IRA.
When it comes to allocating your retirement investments, experts recommend putting at least 60% in stocks during your 20s and 30s. But it all boils down to your risk tolerance. "If you are unwilling to stomach losses, don't put everything in stocks when you're young," says Mick Heyman, an independent financial adviser in San Diego.
The worst thing you can do is buy stocks and then sell them for a big loss, he says.
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Your 40s: Stay focused on the long run
Many people purchase homes in their 30s and 40s. It's important to remember that, "Your house is not part of your retirement plan," Heyman says. "I haven't seen too many times that somebody buys a great home, sells it at 60 and then lives off the profits." So don't spend so much money on a home that you can't afford to save for your retirement as well.
You also must be realistic in providing for your children. "With certain families, I see such excessive spending on kids -- education, cars, etc. -- that retirement needs get left behind," Heyman says. "You have to figure out what you need to retire and not give too much to your kids."
Fredrickson, the independent financial adviser in New York, recommends putting retirement plans ahead of your children's college. "College tuition payments can come from a variety of sources, but retirement funds will have to come largely or exclusively from the parents of these college-bound youths," he says.
Your 50s: Capitalize on catch-ups
"The 50s are the peak earning years for most people, so saving is even more paramount," Fredrickson says.
The government gives you some assistance, allowing increased contributions to IRAs and 401(k)s through what are called "catch-up provisions."
- For IRAs, people 50 and older can contribute an extra $1,000 this year -- $6,500 in total.
- For 401(k) plans, participants 50 and older can put in an extra $6,000 -- $24,000 in total.
If you have kids who are now out of the house, you might have enough money to finance those catch-up payments, says Guffey, of PNC Investments.
When you're in your 50s, it's a good time to opt for more safety in your asset allocation, experts say.
"Somewhere in your 40s and 50s, you want to transfer to more conservative stocks, and make sure you aren't all in stocks," Heyman says. "Start having 20% to 30% in bonds." He also recommends orienting your stock holdings toward dividend-paying blue chips. They offer both safety and income payments that you'll appreciate during retirement.
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Your 60s: Plan an income strategy
This is the decade in which you may well retire. "You'll be shifting from accumulation to distribution," Guffey says. "Hopefully you have built your savings and have a realistic distribution plan for your money to last."
The traditional rule of thumb is that you can cash out about 4% of your portfolio in each year of retirement.
But with low interest rates limiting the amount of income your portfolio will generate, 3% may be more appropriate now, Guffey says. Ideally, you should have 2 years' worth of living expenses in cash to avoid having to dump your investments when markets are weak, Fredrickson says.
In any case, "If you retire at the normal age of 67, you may have another 20 to 30 years to live," says Taylor Gang, a wealth manager at Evensky & Katz/Foldes Financial Wealth Management in Coral Gables, Florida.
As for asset allocation, bonds should account for a larger part of your portfolio, given your need for safety and income, Heyman says.