Crucial Retirement Planning Moves To Make in Your 30s and 40s

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There are certain money moves we focus on making during each stage of our lives. Retirement planning is one of them.

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While the general suggestion is to start planning for retirement as soon as possible, this old aphorism is equally relevant: “When’s the best time to plant an apple tree? 50 years ago. When’s the second-best time? Today.”

There’s no right or wrong time to start planning ahead for retirement, but it never hurts to start early as long as you have an understanding of your plans.

Dr. Rui Yao, PhD and CFP from the University of Missouri, gave GOBankingRates suggestions for how individuals in their 30s and 40s can begin planning for retirement.

30s: Paying Off Debt, Saving and Lifestyle Planning

Most individuals in their 30s have completed their formal educations and are in the process of establishing careers. During this decade, Yao said, debt management is important. People will want to prioritize paying off any debt they have accumulated — e.g., student loans and credit cards. Doing so will help contribute to good credit history and associated lower cost of borrowing, as well as reduce future debt burdens.

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Yao recommends opening an individual retirement account (IRA), whether a traditional IRA or Roth IRA, and maximizing contributions.

“A Roth IRA provides some backdoor liquidity for young individuals,” Yao said, “and should be considered as a high priority.”

Those working for employers who sponsor defined contribution retirement plans, such as 401(k) plans, would be advised to save to the level where the employer’s match stops.

As individuals begin setting the foundation for their retirement, many are phasing into the next chapters of their lives. These chapters are marked by milestones such as saving for homes, getting married and raising children. In the current tumultuous economic climate, the 30s are the prime time to safeguard these and other life events with an emergency fund.

“Depending on job security,” Yao said, “the level of emergency fund should be in cash and equal to six months of basic expenses or more.”

40s: Saving, Risk Management Planning and Budgeting

Saving for retirement becomes even more important once people start aging into their 40s. Income should continue to increase and assets should accumulate. It is the time to begin engaging in risk management planning for longer-term objectives.

What does this mean? Yao recommends prudently reviewing insurance coverages, including property, health, disability and life insurance.

In addition to risk management planning, individuals in their 40s need to take income tax planning and estate planning into consideration. Those who started families in their 30s will need to carefully plan for how children will be taken care of in the event of an unforeseen circumstance and also consider beneficiaries.

As with any decade, it’s possible for people in their 40s to experience career changes. Unlike younger decades of life when people might not have had to worry too much about what happens between job hopping, Yao said people should remember to bridge inevitable shifts in benefits.

“Do not cash out and spend retirement savings from a prior job,” Yao said. “Instead, consider transferring the balance to the new retirement plan, if allowed by the new employer, or rolling it into an IRA. Small amounts of money can compound to a significant level of resources over a long period of time.”

People in their 40s also should be careful not to allow lifestyle creep to take over. This could show up in the form of a luxury vehicle purchase or an expensive new home. As much as possible, people should control their expenses, practice discipline and continue following their budgets. They also should put savings toward retirement regularly.

Yao said, “Portfolio allocation based on risk tolerance and investment horizon is of particular importance during this stage.”

The Road Ahead

The suggested financial advice above is of a general nature and is not tailored for anyone in particular. Some may find they start making retirement planning moves earlier than their 30s, decide the next chapter of their lifestyle is best spent single or that paying off student debt takes a few more years than expected. This is OK, as long as they make decisions that benefit their financial health and future.

“Each stage of life brings with it some common characteristics, as does people’s 30s and 40s,” Yao said. “Keep in mind that, while there are some commonalities, everyone is different, and those differences are important in financial decision-making.”

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This article originally appeared on GOBankingRates.com: Crucial Retirement Planning Moves To Make in Your 30s and 40s