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Many people in their 30s and 40s are just starting to think about retirement and want to explore their options. While it’s ideal to think about and plan for retirement early because return on investment can be higher, there are options for the “late” retirement planners as well. Depending on what goal a person is planning on saving their money for – retirement, vacation, a special purchase, etc., time horizons will vary and financial paths to freedom will be case-by-case.
If you do not have an emergency fund – you should start there. An emergency fund is 3-6 months of monthly expenses that you keep on-deck just in case you were to lose your job or something else terrible and unexpected were to happen. This can be in the form of a checking account, savings account, or any means that you could quickly access the money if you needed it. Once you have defined a comfortable amount and have saved it, you don’t need to keep adding to it (unless your expenses were to increase), just leave it alone – this is an emergency fund, only use it for emergencies!
You should also consider doing a personal budget assessment. To do this, you take your annual income and subtract all of your annual expenses. If you are having trouble estimating some expenses, you should round them up or overstate them slightly. Once you have subtracted all of your expenses from your income, the first thing to do is build your emergency fund if you do not already have one. After you establish an emergency fund look to see if there is any money left over. If there is, congratulations! This means your income is covering your expenses and investing can be an option for you.
Now you can consider the most appropriate way to invest for your goals. If your goal is retirement, start with your employer’s 401(k) or 403(b). These investment vehicles have higher tax-deferred contribution amounts than an IRA and, depending on what your employer provides, there is a chance for your employer to match some or all of your contributions. If you have maxed out your contributions to your 401(k) for the year, if your employer does not sponsor one, or if you’re self-employed, contributing to an IRA may be the right decision for you.
Based on a time horizon and your overall goals, you can gauge what type of investments might be suitable for you. In theory, for the right purpose, an investor can never be too late to the game. For example, a very elderly investor could be investing with the intent to leave those assets to their grandchildren and in doing so, selecting investments suitable for the grandchildren. An investor in their 40’s could choose to invest for the education of their children. Depending on how much risk you can handle and the time horizon of your goals – investment selections and portfolio constructions will vary.
Wherever you are in the investing process, help is never too far away. Reach out to us-we’d love to answer any questions you may have!