Your Roadmap to Financial Freedom

Preet Shah |

At Johanson Financial Advisors, our motto is – Your Life, Our Goal: Financial Freedom. Some clients ask whether they are too young to start preparing for retirement and some wonder if they are too late. We believe that the success of our clients is also our success, so to get you started, here’s a guide, broken down by each decade of life, to start carving your pathway to financial freedom.

In Your 20’s

  • Create an emergency fund.
  • Have a savings goal of 3-6 months of living expenses.
  • Pay off your credit card monthly and live within means to avoid accumulating debt.
  • Consider and plan accordingly if you decide to borrow an education loan.
  • If your employer has a Roth 401(k) plan and offers a match, contribute enough to get that match. Try to max out your 401(k) contribution if your expenses allow for it.
  • Open and contribute to a Roth IRA or IRA if your income qualifies.

In Your 30’s

  • Increase your 401(k) contributions, if not already maxing out.
  • Start investing 10-15% of your earned income, outside of your retirement account.
  • Diversify your portfolio to have a mix of mostly stocks and some bonds.
  • Buy life insurance if a spouse or child depends on your income.
  • If you are married, it may be time to establish a Trust based estate plan.
  • If you have kids or are planning to have kids, start saving for their education in 529 plans.

In Your 40’s

  • These may be your peak earning years. Invest 15-20% of your earned income.
  • Diversify your portfolio to meet your goals. It’s okay to be a little aggressive at this age since you are still earning and do not need the money for approximately 20 years.
  • Check on your parents’ financial & estate plans to ensure their finances are in order and you have some knowledge of it.
  • Assess any college savings you have and make sure you are on track to fund the anticipated expenses.

In Your 50’s

  • Get a good grasp on your cash flow to ensure you are on track to support your lifestyle expenses during retirement. Check in with your financial advisor regarding your financial plan to ensure you are on track. Retirement is about a decade away!
  • Set more aside into your 401(k) or IRA with so-called catch-up contributions.
  • Review and pay off your mortgage and other liabilities before retirement by making additional payments.
  • Assess your portfolio diversification to reduce risk by increasing fixed income allocation (bonds). Maintain stock exposure so you are still getting a greater return.

In Your 60’s and Beyond

  • Set a retirement distribution strategy by understanding the different income streams you'll have coming in.
  • Be mindful of your lifestyle expenses and stay within the budget you have planned for.
  • Contact your financial advisor and compare the different options to start receiving your Social Security Benefit. Try delaying taking Social Security until full retirement age. If you are in good health, it may be beneficial to wait until age 70. It can get complicated for married couples and is usually better to stagger the start dates.
  • Reduce the amount of risk you may take in your portfolio and make sure you have about 3-5 years of income set aside in non-volatile, short-term bonds.

Required Minimum Distribution (RMD) Age 72+

  • Try withholding taxes from your RMD at the time you take it to avoid additional withdrawals annually to cover the tax liability.
  • If making charitable donations, try to donate from your RMD distribution to lower your taxable income.
  • Treat your monthly distributions as paychecks and try to maintain your lifestyle expenses.

Lastly, enjoy! You have worked hard for it!

If you have any further questions or concerns, please feel free to contact our office and we are happy to discuss your personalized scenario.