Philosophers and writers have waxed poetic throughout the ages about the
stages we pass through on life’s journey. The Bible verses in Ecclesiastes
guide us with the words:
"To every thing there is a season, and a time to every
purpose under heaven: A time to be born, and a time to die; a time to
plant, and a time to pluck up that which is planted; A time to kill, and
a time to heal; a time to break down, and a time to build up."
This wisdom holds true for your financial life as well.
While your individual situation is unique, certain experiences along life’s
journey are common to us all. By understanding and preparing for life’s
cycles, you can comfortably handle the financial challenges at each stage.
Your 20s: A time to plant
The life of a 20-something is filled with possibilities.
After years of schooling, you’re on your own. It’s probably
the first time you’re earning substantial money. It’s also
probably the first time you have substantial expenses—rent, wardrobe,
car, student loans, and of course, partying and vacations. The cost of
freedom carries a high price tag.
Between ages 20 and 30 is the time to plant financial
habits that will yield a huge financial crop later in life. And that’s
important, because after you’re done partying, succeeding at your
career, parenting, and grandparenting, you’ll need money to begin
partying again!
Investing style
Investing is not a foreign language; its ABCs just need to be learned.
Put money aside for retirement so in time, it can grow. Over the long-term,
stocks generate higher returns than other investments, like bonds, CDs,
or money market accounts. Naturally, they carry more risk, but at this
stage in life you have a long investing time frame, and you’re
able to handle the ups and downs of market fluctuations.
Handling credit
This is the time to learn about debt management. As expenses pile up,
you may be seduced by credit cards. Irresistible offers appear in the
mailbox daily. Resist them. Your credit rating is akin to your permanent
record when you were in school. Don’t jeopardize it by taking
on more debt than you can handle.
Seed retirement accounts
Take advantage of opportunities to defer income until retirement. Contribute
fully to your company’s 401(k) plan and consider opening a Roth
or traditional IRA.
Create goals
Design a blueprint to turn your dreams into reality. Begin by planning
short- and long-term goals. Do you want to own a home, buy a car, or
tour Europe? Stash some cash so it’s there when you need it.
Pay off student loans
Nurses can have much of their loans forgiven by working in a critical
nursing facility, as provided by the recent Nurse Reinvestment Act.
Your 30s: A time to build up
You’ve survived your 20s and are seeing the fruits
of your labors blossom into a portfolio of growing assets. Perhaps your
career has progressed and you’re in a supervisory position. It’s
time to build your fortune.
Investing style
Diversify your portfolio so it includes stocks from a variety of asset
classes and sectors, bonds, and cash. You’re still young enough
to invest for aggressive growth. But now it’s time to invest some
money into more stable companies.
A family affair
If you have children, begin preparing for their futures. Investigate
state-sponsored 529 college savings plans that allow your money to grow
tax-free. When the money is used for qualified higher-education purposes,
the distributions are tax-free as well. If you have young children and
a mortgage, purchase life insurance to cover the unexpected.
Financial advice
Consult a financial advisor to help ensure you are on target to meet
your savings and investing goals. You also should have an excellent
accountant to guide you toward greater tax savings.
Ages 40-55: A time to embrace
At this stage you’re settled in, probably paying
off the mortgage for your first home and perhaps contemplating purchasing
a second one. You may love your job, but you probably love the idea of
impending retirement a good deal more.
Investing style
Maintain a well-diversified portfolio. You may want to allocate more
of your investments to conservative issues, like bonds. If you have
excess cash, distribute it according to your goals. Don’t chase
the next hot stock or be tempted by people offering a “can’t
lose” deal. You can lose. As your children approach college age,
move college savings from aggressive funds into conservative ones. If
the stock market dives, tuition won’t go with it.
Estate planning
Create an estate plan. A good planner keeps your retirement goals on
track. Draft a will and buy enough life insurance to protect your family.
Increase savings
As kids finish college and expenses decrease, move more cash into savings.
If you’re over 50, take advantage of “catch-up contributions”
that enable you to contribute more to your IRA and 401(k). A $500 additional
contribution to your IRA is permissible in years 2003–2005. For
your 401(k), you can contribute an additional $2,000 in 2003, $3,000
in 2004, and $4,000 in 2005.
Ages 55-65: A time to keep
You’ve been in nursing a long time. Even if work
excites you, you’re probably ready to retire, or work on your terms.
Investing style
As you approach retirement, move more assets into conservative investments
to preserve principal and generate income.
Realistic retirement
Thoroughly analyze your retirement accounts. Is there enough money?
If not, how much longer must you work? Is Social Security a viable option
to supplement your income? It’s also the time to make dreams come
true. Where do you want to live? Now is the time to travel to possible
retirement venues that have heretofore only tickled your fancy.
Retirement: A time of peace
The time has finally come. You wake up in the morning
and decide what you’re going to do that day, with no one to report
to but yourself. Finally, the boss of your dreams!
Investing style
Your investments need to focus on preserving principal and generating
income for you to live on. Fixed-income investments and dividend-paying
stocks are a large part of your portfolio, with a small amount invested
in growth stocks to keep pace with inflation.
Update estate plan
Review your estate plan annually. If assets aren’t needed during
your lifetime, design a plan to leave them to your heirs. Consider long-term
care insurance to protect assets in case of a serious illness.
A time to every purpose
Your life may not fall into the general age groups outlined
above. Divorce may have sidetracked you in your 30s, forcing you to begin
anew as if you were in your 20s. Marrying late in life and having children
in your 40s may make your 50s seem like your 30s. Whatever your age, these
basic guidelines still hold true: Stay out of debt, adhere to a regular
savings plan, keep your investments diversified, develop and stick to
your goals, and buy appropriate insurance. Enjoy your retirement—you
worked hard for it!
