Ask an Advisor: How can a single individual at 45 navigate the challenges of funding both short-term goals and long-term retirement savings simultaneously?

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Ask an Advisor: How can a single individual at 45 navigate the challenges of funding both short-term goals and long-term retirement savings simultaneously?

At 45, you likely realize that you have similar financial needs that you had at other ages. That is: you still have a mortgage, car payments, and increasing lifestyle expenses.

You have hopefully seen your retirement accounts grow a bit more over the past few years, but you may also feel like you are behind and nowhere near on track for retirement.

Every individual’s situation is unique and different. No matter your situation, here are a few important factors to take into account as you plan your short-term and long-term future.

First, continue in the right financial order. You don’t want to focus on the long-term without being on track for your short-term goals. That’s because over saving for the long-term while under saving for the short-term can actually increase the likelihood of making financial mistakes.

Some of these factors can vary in importance and length. This is not an exact order for everyone, but it’s a good general direction.

1st: Establish and maintain a 3-6 month emergency fund. That’s 3 months of your necessary lifestyle expenses if you have two solid sources of income. It’s 6 months if you have one source of income.

2nd: Get your retirement match if you are not already. For example, if you have 100% match up to 3% contribution, then contribute the 3% to get the match.

3rd: Pay off high interest debt. Typically, this is anything above 8% interest. To get an 8% guaranteed investment return is improbable so it’s better to pay off the debt than invest more for retirement. Exceptions rarely apply. For example, if you have student loans at 8% interest, then it’s possible you are focused on loan forgiveness (making minimum payments) and you may also be getting a tax deduction for that student loan interest.

4th: What are your major purchases over the next 3-5 years? Purchasing a car, going on a vacation, or replacing the flooring in your home, or buying major appliances? You don’t want to set yourself up where you focus on saving for retirement and then find yourself with credit card debt because you forgot to save for the vacation or new roof.

5th: Give yourself retirement options. Evaluate potential retirement plans for different ages of retirement. Maybe you really want to retire at age 63, but it will require savings you just do not have right now. Give yourself the option to retire at age 65 and age 70. You do not need to feel obligated or set on retiring at a specific age, but you do want a good idea of what it takes.

6th: Evaluate your income and future bonuses, promotions, and job changes. Change will come. You may not be able to save enough for retirement now, but build promotions, changes, and bonuses into your plan. Maybe you can’t save enough now, but in three years after you pay off the car or receive a promotion, then you can build that increase into your retirement plan.

For example, you know within the next three years or so that you should receive a promotion which will increase your salary by $25,000. 30% of that increase will go to taxes, but the rest ($17,500) could go to retirement which will then get you on track for retirement.

7th: Be conservative with your assumptions and look to over save for the short-term and over save for the long-term.

You likely are looking at 20 years or more until you retire (age 65). Relax and be honest with yourself. A lot can change in 20 years. You are starting to enter what is peak earning years for most individuals. As you earn more and pay off debt, then saving for retirement usually becomes easier and easier the closer you get to retirement. The key is to take care of the short-term first so that it doesn’t end up causing you to save backwards (using your long-term savings for short-term needs).

About the Author

Blake Jones, CFP®, EA, CBDA Conquer Debt Without Touching Your 401(k)

Blake Jones, CFP®, EA, CBDA | Pomegranate Financial

🔗 Website | Wealthtender Profile

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This article is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

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This article originally appeared on Wealthtender. To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers.