The Most Important Retirement Planning Milestones at 8 Different Ages

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The 20s: The Road to Retirement Readiness Begins

Watsek said the core approach to retirement saving for many clients will be starting to invest via a workplace 401(k) or individual retirement account at some point in one’s 20s, ideally sooner than later, given the power of compounding.

While maxing out these account contributions is unlikely for many early career professionals, clients should be taking particular pains to at least get the full employer match. Even those who can only save a little should probably do so, as this helps to establish the idea that saving for retirement is not something to be put off for later decades.

"Those who can should prioritize after-tax emergency funds, as well, covering six months or more of expenses," Watsek said. "This can really come in handy during an unexpected job loss, for example."

Other keys are to avoid credit card debt and to stay on top of student loan payments and the service of other types of positive debt that can build a strong credit history.

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The 30s: Staying Committed and Balancing Expenses

In Watsek’s experience, the 30s are often about managing growing expenses while staying committed to long-term wealth accumulation.

"People are often starting or growing their family in this decade, and they tend to take on substantial housing debt and other expenses," he said. "The higher expenses are not a bad thing, but the general planning rule of thumb is that people should be fighting to direct at least 10% of their income towards long-term wealth accumulation."

If the resources are available, it can often make sense for a client to begin to fund health savings accounts or 529 college savings accounts during this period, as a complement to their emergency savings and retirement accounts.

Simply put, keeping the client on track in their 30s will go a long way toward overall retirement success, while a derailment during this decade can be difficult to correct.

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The 40s: Peak Earnings and Life Transitions

According to Watsek, the 40s are for many people the start of their peak earning years, and it first becomes possible to do things like max out 401(k) plan contributions. At the same time, however, the shorter-term financial pressures of this decade are considerable.

"Many people who are in their 40s find that they are still paying off the last of their own student loans while also saving for their kids’ forthcoming college education and meeting the considerable health care expenses that come along with raising their family," Watsek said.

Overall, one’s 40s can be complex and stressful years from a financial perspective. As such, this is the time that the services of a financial planner can start to become essential.

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The Early 50s: The Retirement Red Zone

From Watsek's perspective, the advent of one’s 50s brings substantially elevated planning needs, thanks in no small part to the emergence of sequence of returns risk.

"The riskiest phase begins when you are expecting that, within a 10-year time frame, you will not be able to or wanting to live based on working income," Watsek said. "You begin to think very directly about how you are going to be matching your assets and anticipated returns with the income that you will likely need."

Watsek said the "good problem" of growing longevity has added another layer of difficulty to the planning process at this life stage. On one hand, the traditional retirement date is right around the corner, but on the other, a healthy individual in their 50s could easily live to be 90 or older.

"So, while it is important to mitigate unnecessary risks, it is also going to be crucial for most people in their 50s to still maintain a significant allocation to growth assets," Watsek said.

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The Late 50s: Balancing Risk and Reward

As Watsek warned, it is easy for people who are excessively risk-averse to underestimate the damage that inflation can do to their spending power over time. Often, people are more concerned about market losses than they are about this nearly guaranteed loss of spending power.

"Planning professionals know that inflation takes away a big chunk of one’s spending power over a 20- or 30-year retirement period, and so you need to maintain portfolio growth to offset that," Watsek said.

Watsek said one financial tailwind experienced by many people in their late 50s is that temporary obligations such as college payments and mortgages tend to begin winding down, allowing more money to be saved and invested. Catch-up contributions for tax-advantaged accounts such as 401(k)s and IRAs also become available, and this is a great time to be doing more advanced planning about Social Security claiming.

"Another key is to look past simple rules of thumb, like a 60/40 stock bond allocation and a 4% withdrawal rate," Watsek said. "These rules of thumb don’t speak to people’s individual lives and circumstances as retirement approaches."

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The 60s: The Traditional Retirement Age Arrives

Ideally, Watsek said, a given client will reach the milestone of their early to mid-60s with at least five years’ worth of living expenses held in safety reserves that will not lose substantial value in a market downturn.

This safety bucket allows for the shifting other portions of the portfolio toward income-oriented investments to cover current expenses and growth assets to cover future liabilities and the potential for excess longevity.

"This is often a good decade to plan carefully for future required minimum distributions that will come along in the 70s, and to potentially take actions to convert assets to after-tax accounts," Watsek suggested. "You will probably also want to put the initial steps of any estate plans into place."

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The 70s: Lifestyle Evaluation and Reassessment

As a client enters their 70s, Watsek said, the planning discussions tend to naturally evolve away from a focus on purely financial topics. Questions about lifestyle hopes and expectations, on the other hand, tend to come to the fore.

"For many people, this decade brings about a reevaluation of lifestyle questions and a reevaluation of longevity expectations," Watsek said. "It is not an easy thing to do, but it is natural for people at this age to be thinking about these things."

Watsek urges his fellow advisor professionals to "keep it practical" when engaging in these discussions.

"You can do things like help to evaluate where one wants or expects to live for the long term," Watsek suggested. "There should also be a reassessment of whether expenses can or should be reined in now to prevent severe shortfalls or hardship later in life."

Advisors can also do a lot of good by having their clients think and act proactively with respect to any required minimum distributions from tax-advantaged accounts that kick in during this decade.

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The 80s and Beyond: Legacy Planning and More

In Watsek’s experience, the planning process for clients in their 80s is best viewed as a kind of culmination of a lifetime of hard work.

From a practical perspective, the client’s investment timeline is now "as short as its ever going to be" in the traditional planning process.

"So, depending on the person’s wealth status and estate goals, yet another significant investment reassessment might be in order," Watsek said. "During this decade, it is important to clearly communicate with next generations about legacy and inheritance issues. It is also important to do what you can to encourage your clients to stay active and engaged, reducing their risk of chronic illness and dementia."

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