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5 stages of retirement planning

By Jennie L. Phipps ·
Monday, March 31, 2014
Posted: 3 pm ET

Too many people think of retirement planning as a problem for the fifth and sixth decades or even later, but people who start thinking about retirement when they are young have more money and more fun when the time rolls around. Here are the five important stages of retirement planning, as outlined by Katie Libbe, vice president of consumer insights for Allianz Life.

Stage 1: Ages 20 to 30

  • Start saving early. If you save $500 a month when you are 25 and your money grows at 6 percent on average, by the time you turn 65, you'll have socked away nearly $1 million. "You have compounding in your favor," Libbe says.
  • Take the free money. If your employer offers to match your savings, be sure you're saving enough to get the whole match. Leaving money on the table isn't smart.
  • Prioritize. Put savings higher on the list than entertainment.
  • Make savings automatic. Set up direct deposit from your paycheck. "If you move the money right into savings, treating it as if it were a bill, you learn to live on what's left," Libbe says.

Stage 2: Ages 30 to 40

  • Worry more about retirement than college. Especially if you had a lot of college debt that you were still paying off in your 20s, now's the time to concentrate on your own well-being. Your kids will figure it out.
  • Put your money in equities. Take a little risk in the interest of maximizing your retirement savings.
  • Make a will and update beneficiaries. If something happens to you, you want the money to go to the right people.

Stage 3: Ages 40 to 50 (the big money years)

  • Do some serious tax planning. "We think that one of the things you should do --  if not annually then every couple of years -- is have an expert look at your taxes and make sure you aren't overpaying and you are taking advantage of all the possible tax breaks," Libbe says.
  • Rebalance. You're getting older and if you lose a big chunk of money now, it will be harder to replace. But don't be too cautious. You still need equities.
  • Branch out. Stash some of that extra money in other kinds of investment vehicles besides your 401(k).

Stage 4: Ages 50 to 60

  • Plan for a second act. You're probably working harder and earning plenty, but it won't last. So, now's the right time to consider what comes next. Make a financial plan to ensure that you can afford to make it happen.
  • Consider downsizing. Do you really need all that stuff? With the kids getting older, think about ways to cut back.
  • Catch up. Uncle Sam offers several opportunities for retirement savers to ramp up once they reach 55. Take advantage of them.

Stage 5: Age 60-plus

  • Delay, delay, delay. The longer you can put off retirement and Social Security, the better off you'll be -- not just financially, but lots of evidence suggests that staying engaged is also good for health and relationships.
  • Allocate smartly. Pay attention to taxes. Where you put your money and how you spend it can make an even bigger difference now.
  • Continue to save. "We think that for boomers, having a part-time job is going to be a badge of honor in the future," Libbe says.

Learn more about funds that last as long as you do.

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April 02, 2014 at 9:41 am

Savings accelerators actually start at age 50, not 55.

April 01, 2014 at 9:22 am

I plan on working after I officially 'retire'. My mother worked hard all her life. She took early retirement at 62. I noticed after she retired that her mental health started to go downhill. I think working while in retirement gives a person a purpose!

jane smith
April 01, 2014 at 7:16 am

I totally agree it is all about planning in different life stage.I start to max out my 401k even when I was mid 20, I manage to pay for my son and my husband second college degree. It is not all about how much you made but how much you plan and save.

April 01, 2014 at 6:59 am

This is great advice, if you can do so. My parents always encouraged us to follow their example and save. I have reached this to our soon to graduate from college son. First he needs to secure a job, then hopefully he can follow this plan.