Investing money to build a comfortable retirement nest egg is a long haul, one that should (ideally) begin in your 20s and evolve as you age. As each decade of life brings changes to your lifestyle, priorities, and pursuits, your investment strategy should also adapt. What you don't want to do is take a "set it and forget it" approach with retirement investing.
"Our financial lives tend to become more layered and complex as we move from our 20s to 30s and beyond. What we strive to accomplish when we're in our 30s may be very different from where we want to be money-wise when we're turning 50," says registered financial advisor Pam Krueger, founder of Wealthramp and creator and co-host of PBS' MoneyTrack. "As your life changes and the economy, stock market, and interest rates also change around you, it is critically important that you know where you stand and how best to position your investments."
With such wise words in mind, here's a closer look at how your investment strategy should shift decade by decade.
During your 20s
Retirement can seem like a distant, hazy dream when you're in your 20s. And for good reason: Most people still have 40 to 50 years of work ahead of them. Which is exactly why now is the time to be bold with your approach to investing.
"Generally, you will want to take more risk when you're younger and gradually reduce this risk over time as you approach your retirement," says Heather Comella, a certified financial planner and the lead financial planner at Origin.
What's more, as you embark on your investing journey, Comella advises you to remember there are three things you can control when it comes to investing: the amount that you're contributing, the frequency at which you contribute, and how much risk you take with your investments.
"For the amount, the goal should be to save as much as possible in your early years while you're spending is typically lower," Comella says. "A good goal to strive for is to save 20 percent of your income into savings vehicles such as your 401k or other retirement plans that you might have access to. As for frequency, plan on contributing to your savings monthly and be sure to set up regularly recurring purchases if you're doing any investing outside of your workplace plan."
When it comes to level of risk, as Comella already noted, it pays to be bold at this point in life. And she offers this helpful tip: "There's a well-known 'rule of thumb' to put your stock allocation at 100 minus your age. So, if you are 30 years old, invest in 70 percent stocks, if you are 60, invest in 40 percent stocks, and so on."
Good to know right? Makes visualizing it all so much easier. Though Comella adds the caveat that even this rule of thumb can be too conservative and suggests leaning toward even higher stock allocation while youth is on your side.
Here's what you do not want to do in the early years: Ignore investing altogether. Sure, it can be tempting if you're mired in student debt to focus on paying that off. Or perhaps to focus on saving for a home. But Brian Dechesare founder of the investment career platform Breaking Into Wall Street points out that even putting a small amount of cash into investments at this point while you strive to achieve other goals, can have a big payoff in the long run.
"If you make the average 10 percent rate of return on the S&P 500 year over year, a small sum can snowball into a massive retirement fund by the time you're 60," says Dechesare.
During your 30s
Ah, your 30s. This is often one of the most carefree decades of life. By now, many people are making some headway with their career, potentially earning a bit more, and enjoying a bit of the fun and freedom that money and professional advancement can bring.
While investing may be one of your lowest priorities still, you'll want to be maximizing retirement investments as much as possible, focusing on a medium to high-risk investment approach at this point.
You should also be maxing out 401k contributions to make the most of the income tax reductions on salary that this step provides, as well as any employer contribution matches that may be offered by your workplace.
"Take all the free money you can," says Dechesare. "Once you're hitting your 401k maximums consistently, divert extra savings into a Roth IRA. Though you'll pay income taxes on this investment now, you'll pay no taxes when the money is withdrawn during retirement."
During your 40s
Kids, carpools, soccer games, PTA meetings, high school graduations, empty nesting…These are just some of the highlights you might experience during your 40s, depending on your life path.
As for investing, reasonably bold is still a solid approach.
"For professionals in their 40s, your money likely has another 20-plus years in the market before retirement. You'll likely still factor risk into your stocks versus bond allocations since you still have time to make up for any potential losses, " says Brian Walsh, CFP at SoFi and manager of financial planning. "It's OK to put a little on the line in exchange for a bigger win down the road. Just keep it within reason."
"This means they should at least have 50 percent of their portfolio in stocks and 50 percent of their portfolio in more conservative options such as bonds, alternative investments, and cash," says Galbraith. "If you have a higher tolerance for market risk, an investor could continue to have 70 percent to 80 percent in stocks."
One additional note: When you're in your 40s, it can be tempting to spend more money on vacations, cars, and keeping up with the Joneses. Who doesn't like to treat themselves after all that hard work? But as Walsh notes, if you were to put some of that money you're spending on extras towards retirement savings instead, you may even be able to reach your goals early and (gasp) retire earlier.
Nearing or preparing for retirement
As you move through your 50s, retirement may still likely be quite a ways off. But a bear market can quickly wipe out years of savings and investment gains. For this reason, it can be a good time to begin slowly dialing back the risk in your portfolio, depending on your circumstances.
Pauline Roteta, a Boston-based certified financial advisor, recommends reducing exposure to equities and riskier assets such as cryptocurrency.
"Rebalance to bonds and cash-like securities. This will help protect your portfolio and retirement savings from a big market downturn at the wrong time," says Roteta.
Those who plan on working longer, past the age of 62, may feel comfortable maintaining more stock-heavy portfolios by allocating roughly 70 to 75 percent in stock funds and the rest in bonds and cash, adds independent financial advisor Stephanie Genkin. Others, who may have saved a lot of money and don't need to take quite as much risk, may sleep better by increasing their bond or cash position in the account.
Also in your 50s, it's a very good time to check in with a comprehensive financial advisor to make sure you're on track for retirement and have a professional recommend any needed changes in course.
Whether you're in your 20s, or 50s, you can't afford to wait to start investing for retirement. Simply putting money into a savings account will not generate nearly the same long-term financial gain. In fact, by taking this approach, you'll actually be losing ground.
"All the money sitting in your savings and checking account is actually losing value every year due to inflation. Investing is a way to protect your nest egg against the rising cost of goods and services you want to buy in the future," says Roteta.
Investing allows for actively growing your money, and to do so effectively, you'll need to remain thoughtfully engaged during each phase of your life and adjust your portfolio accordingly.
"The key is staying involved," says Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation and the firm's personal finance expert. "If you have a well-thought-out plan and a balanced portfolio, rebalance on a regular basis, stay diversified, watch costs, and consult with a financial planner when you have questions, you'll be well on your way to a financially secure retirement."