There is a surprisingly useful lesson to be learned from the world of auto racing, according to an article appearing in U.S. New, “5 Pit Stops for Better Retirement Planning.” At any point in your life, take a pit stop: take the time to check the health and well being of your portfolio, see if you need to make any changes, and then, get back into the race.
An easy way to remember when to take a pit stop? Use key birthdays as critical checkpoints. They’re good reminders to take stock of where you are and how you want to shape your future. Take a look at these important birthdays from a financial planning viewpoint:
On your 21st birthday, or as soon after that as you start to earn money, also start saving long-term. You can invest in a 401(k) plan at work to get company matching contributions.
On your 30th birthday, check on your savings. You have only 10 years until age 40, and the money you save before 40 is almost equal to what you’ll save for the rest of your life after that point, as far as compounding returns.
On your 45th birthday, you're going to be in the "sandwich" position. You may have parents who are around age 70 or so with college-age kids or recent grads. This is an ideal pit stop for your trust and estate planning, so that you and your children are ready for the issues associated with this sometimes difficult time.
By age 62, you should be concentrating on your needs—from 50 to 62, your earnings must help you prepare for retirement. At age 62, you are also now eligible for Social Security, but the longer you can wait before drawing on your Social Security payout, the better. You’ll realize a sizeable jump in income, if you wait until 70.
Made it to 70? Great–that’s your magic birthday. You can now withdraw from Social Security at the highest rate and place that money into other safe investments. Remember, that at age 70½, you are required to withdraw from your 401(k).
In addition to the birthday pit stops, significant events in your life, including divorce, death of a spouse, the birth of a child or grandchild, are also good dates to take a retirement pit stop. By making sure that you’re your plan is on track and your performance is strong, you’ll be ready to hit the retirement road at a healthy speed when that date finally comes.
Reference: U.S. News (December 5, 2016) “5 Pit Stops for Better Retirement Planning”