12 Financial Milestones to Hit by Decade

As you move through life, your financial needs and goals will change over time. No two people will share the exact same financial journey. Still, there are some fairly broad themes that can apply to most folks who are looking to live a reasonably comfortable life, take care of their families, and maybe leave a little something to be remembered by.

With that in mind, here are 12 financial milestones to hit by decades of your life. They’re designed around what many people face around those times of life. While your specific circumstances may be different, this can still serve as a general guide on how to best get your money to work for you over time.

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The sooner in your life you get your debts under control, the better your chances of reaching long-run financial success. You don’t need to be completely out of debt before you start investing, but any debts you have do need to be reasonable ones.

So what makes a debt reasonable? Well, it has to have three key features:

• It needs to have a low enough interest rate that you can reasonably expect to beat that rate with your investments over time.
• It needs to have a low enough payment that you can cover it from your ordinary income without having a major impact on the rest of your life.
• It needs to serve a clear purpose for your future.

If your debt does not meet all three of those criteria, then you should prioritize paying it off as quickly as you can. Otherwise, your debt will very likely become an anchor that keeps you from meeting your other life priorities.

ALSO READ: How to Get Out of Debt and Stay Out for Good

Life happens. Cars break down. People get sick. Roofs leak. Jobs aren’t all that secure these days. Unexpected expenses happen to all of us, and it’s not always feasible to use credit to cover the costs you face. That makes building an emergency fund a critical part of your financial plan even as you’re just starting out in your 20s.

Ultimately, you’ll want your emergency fund to cover around three to six months of your expenses. At that level, it can provide a nice buffer for when things go wrong without consuming so much of your money that it keeps you from being able to build a strong long-term nest egg. Don’t stress too much if you can’t get it fully topped off right away, but make it a priority to make regular progress until you get in that range. When things go wrong, you’ll be glad to have that buffer available to you.

Once your debts are under control and you have a decent start on your emergency fund, you should be able to turn your attention to investing. Beyond a shadow of a doubt, the very first investment you should make is to work toward contributing enough to your 401(k) or similar employer-sponsored plan to get the most from your match.

It’s hard to beat the automatic returns that come from a match. In addition, the combination of starting to save early in your career and getting that employer match can set you on the path for an incredibly comfortable retirement.

By the time you’re in your 30s, you will likely have gotten through most of the one-time start-up costs of an independent life. With those costs behind you, you might want to focus some of your finances toward longer-term lifestyle priorities like homeownership or a newer car. If you want to buy a large-ticket item that you can’t simply cover with your paycheck, you’ll need to save up for it.

One strategy that works for a car is to “keep making the payments” once you’ve paid off your car, putting the money in a savings account instead of sending it to the finance company. Once you’ve got enough saved up to buy the car you’re looking for, you can simply write a check to pay for it. When it comes to a house, while it may not be feasible to pay cash for your first home, to get the best terms on a mortgage, you do generally need a decent down payment.

This is for two key reasons. First, the lender sees itself as safer if you have some of your own skin in the game. It rewards that lower risk with lower rates and overall costs. Second, the cost of homeownership involves far more than just the mortgage. If you want to not just become a homeowner but also stay one, you’ll need to get in the habit of socking away a little bit to handle the upkeep, maintenance, repairs, and other surprises that homes bring.

ALSO READ: 4 Homeownership Expenses That Caught Me Off Guard

Your 30s may very well be the most important decade of your life when it comes to saving for your retirement. You’re young enough that compounding can still perform incredible work for you. In addition, your kids are likely young enough that you haven’t reached the crazy expensive costs of them driving or going to college. In addition, your parents are probably still young and healthy enough that they are able to live largely independently.

That combination makes your 30s an incredibly powerful decade when it comes to planning for your retirement. As a result, you should absolutely be sure you’re investing enough when you’re in your 30s to have a strong chance to get yourself a comfortable retirement at a typical retirement age. In addition, if you’d like to retire sooner or with a bit more than you strictly need to retire, then your 30s is a great decade to start accelerating your plan.

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By the time you reach your 40s, chances are that your kids are approaching college age, and they may already be there. With your own financial future on track, now is a great time to think about helping your kids get their futures on track, too. Saving and investing to help them fund college or trade school is a great use of money you have available.

This is a case where order matters. The reality is that, if needed, your kids can borrow and/or find some sort of work to cover their college costs, but you can’t really borrow to cover your retirement. In addition, if you get to retirement and find you have more than you need to cover your costs, you can always help them pay back their loans.

On the flip side, if you don’t get your own financial house in order before you help them with their futures, you’re simply increasing the risk that you become a financial burden on them as you age. From that perspective, taking care of yourself first also helps you better take care of your kids.

By the time you’re in your 40s, it might be apparent to you how well your parents have been able to save for their own golden years. Especially if they did the reverse of the above guidance and took care of your future before they took care of their own, they may be coming up a bit short when it comes to covering their own costs.

If you are -- or suspect that you will soon be -- part of the “sandwich generation” that needs to care for both your children and your parents, now is a great time to prepare for it. With a little advance planning, you might even be able to figure out a way to help yourself as you help them.

For instance, if you add an in-law suite to your home, you might be able to lower the total cost of living for your family by combining households and getting live-in help for your own kids. Especially if you can do it in a way such that you each have your own space even as you combine homes, you might be able to turn what could be a costly and tough situation to your mutual advantage.

ALSO READ: How Much Money Should I Have Saved by 40?

When you’re in your 50s, chances are that you’re in or around your peak earnings years. In addition, once you reach age 50, you’re eligible for catch-up contributions that allow you to put more money away in retirement plans than you could when you were younger. That combination of higher income and higher contribution limits gives you your last best opportunity to sock away money for your golden years.

If you’re already where you need to be from a retirement planning perspective, you can use the higher income in your 50s to cover any other life priorities that you’d like. Maybe you’d like to help your kids pay down their college debts. Maybe you’d like to upgrade or update your home. Maybe you’d like to start tackling your bucket list items and enjoy the fruits of your lifetime of labor while you’re still young enough to enjoy it.

Whatever you choose to do with your time and money, be sure to recognize which decisions are one-time costs and which ones add more permanent ongoing expenses to your lifestyle. Any permanent costs you add are ones you’ll have to cover or figure out how to get rid of in your retirement.

In some circumstances, you can start tapping your retirement accounts without penalty as early as age 55. More generally, you can make most retirement-style withdrawals, including tax-free withdrawals from Roth-style accounts, once you reach age 59 1/2. That makes your 50s an incredibly powerful decade when it comes to your retirement plans.

It also means that careful planning in your 50s can help you maximize what you get to keep from the money you’ve spent your career accumulating inside your retirement accounts. As you build that plan, key things to consider include:

• How much you have saved
• What types of accounts it is saved in
• How long you expect you’ll be working
• How long you anticipate your retirement will be
• How much you’re currently earning
• Where you’d like your assets to go once you no longer need them

All those factors play into what a good withdrawal strategy looks like, and by keeping them in mind, you can improve your chances of building one that works for you and your priorities.

You can tap your Social Security retirement benefits at any time once you reach age 62. The longer you wait, up until age 70, the higher your benefit will be but the less time you’ll receive that money. The choice as to when to collect is a very personal decision that depends on your individual circumstances, expected life span, and actual retirement date. That said, there are four key ages to consider within that band:

• Age 62: This is the earliest you can collect, but it locks in the lowest monthly benefit you can receive. You also face a penalty if you work while collecting your Social Security benefit below your full retirement age, so only consider this age if you know you’re done working.
• Age 65: At this age, you become eligible for Medicare, and if you’re taking Social Security, you can have your Medicare Part B premiums deducted directly from your Social Security check. If you do this, you also get the benefit of the “hold harmless” provision. That means your Medicare Part B premiums typically won’t increase faster than your Social Security benefit.
• Your full retirement age: If you haven’t reached your Social Security full retirement age yet, it’s between age 66 and 67. The key benefit of starting at that age is that you no longer face a penalty for working while collecting your benefit. You’ll also be eligible for a benefit that’s exactly in line with your projected full retirement amount.
• Age 70: If you haven’t begun claiming by this point, you really should begin claiming now, even if you intend to continue working. Beyond this age, you no longer get a boost from waiting, so not collecting by this point simply leaves money on the table.

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Once you reach age 72, you are typically required to start taking withdrawals from all your retirement accounts except Roth IRAs. You can either make a qualified charitable distribution or a distribution from your retirement accounts to cover those mandatory withdrawals, but that money cannot stay inside your retirement account.

Should you choose to take the money for yourself, know that except for money coming from a Roth 401(k), those mandatory distributions are generally treated and taxed as ordinary income. That treatment means your mandatory distributions can make your Social Security benefit taxable and increase your Medicare Part B premiums. This is why it’s so important to get your withdrawal plan in place in your 50s (as mentioned earlier), while you still have time to make adjustments.

ALSO READ: Crush Your Retirement Goals With These 3 Moves

As you reach into your 70s and beyond, you have a great opportunity to plan for how you’d like your legacy to be carried on once your time on earth has passed. This is a case where the earlier you plan, the more you can both guide the process and see the benefits while you’re still alive.

Things to think about when planning for your legacy include:

• How you would like to be remembered
• How you’d like to help your children, grandchildren, and any other descendants
• Which charities you’d like to support
• If there is a cause you’d like to champion without sufficient charitable support

While money can play a key role in what you’re able to leave behind, it doesn’t have to be the only thing you leave behind. By planning and executing what you can while you’re still able to play an active role, you can better assure that whatever you set up meets your expectations and desires. You can also be there to witness some of the early benefits of your generosity, which is a wonderful way to experience the legacy you’re leaving.

No matter what your age, chances are that you can take some steps to make your money work a bit harder for you. The sooner you get started, the better your odds are of building and running a financial plan that meets your needs throughout the rest of your life.

So take stock of your financial situation now, and figure out where along these milestones you currently stand. Use that as a jumping-off point to what comes next, and put yourself on a trajectory to where you have a stronger chance of your money better meeting your goals from now on.

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