You’re Over 30…Now What?

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Prospective clients in their 30’s often approach me with the same question:  what should I be doing?

It’s almost instinctual that we replace “want to” with “should be” during this decade.  With our 40’s in the lineup as the next decade marker, it’s no wonder that the responsibility clock begins to tick louder prompting young adults to make important life decisions while time and energy are still on their side.

As an advisor (as well as a detail-oriented, meticulous person), it’s very exciting for me to see someone take steps to clearly define his or her goals and put in place a plan to reach them.  It’s particularly exciting to meet with a young adult since it often brings the challenge of allocating a stream of income across multiple goals that will come to fruition over the course of 30-40 years.

While it may feel as if you need to address an endless “should be” list of personal finance items, key personal financial seeds to sow in this age group towards securing your future typically fall within the following six categories:

Retirement Planning

When do you want to retire, and how?  Your answers will dictate how much you need to start saving today, whether you need to invest to potentially increase your rate of return, and how to leverage the various retirement accounts available to you.

How you save for retirement (or semi-retirement) may be one of the most important decisions you make today since the growth of your savings is a factor of time and technique.  Using a retirement calculator is an excellent way to visualize how frequency, duration and rate of return all make an impact.

Also keep in mind that not all retirement accounts are the same.  For example, a 401K plan has limited investment options compared to a Roth or Traditional IRA.  Higher income earners may also consider tax-deferred insurance-based products with principal guarantees (yet often also with surrender penalties).  An advisor can help you determine what’s appropriate for your goals.

Insurance

Does anybody depend on you or your income?  Or if you looked around right now and suddenly lost something you see, would that hurt your financially?

If you answered yes to any of these questions, consider getting an insurance policy.  Insurance is available for a laundry list of things including life, health, disability, home, car, floods, and renter’s.  Even key person insurance is available for insuring against the loss of a business partner, or personal liability insurance for if you’re personally sued by someone (for example, if your dog bites your neighbor).

If you get insurance through your job, it may be cheaper than if you got a policy directly with an insurance carrier. However, you may lose coverage when you change jobs or retire.  As a result, consider getting your own policy.  If you’re young and healthy, you may be able to lock in a reasonable premium for the lifetime of your contract.

Life Events

Are you planning to have children?  Or get married?  Start a business?    You may need to weigh the financial requirements for each against you ability to save for retirement and pay for insurance.

Once again, a variety of savings techniques are available with advantages and disadvantages that could help or hurt your overall financial picture.

For example, saving to a state 529 college savings plan may provide you with a state tax write-off.  However, where you incorporate your business and the business structure you choose may incur either a higher personal tax burden or potential personal liability risks.

Estate Planning

If you pass away tomorrow, do you have a plan in place to transfer your assets to a beneficiary?  If not, you may run the risk of a judge deciding who gets your savings and even who gets the things in your apartment.  This could result in a creditor getting your prized rock guitar collection, and not a relative.

Your plan may include creating a will, ensuring that your retirement accounts and insurance plans have up-to-date beneficiaries,  or ensuring that you have a trust established to transfer assets to a child or charity with ideally a low tax burden.

Real Estate

Do you have plans to buy a home in the future?  Upgrade to a new home?  Or to buy a vacation home?  Are you considering investing in foreclosed properties, or flipping?  Are you thinking about buying commercial real estate for your business?

Success in each of the above requires lining up the right advisors, planning towards having a successful transaction that you can afford, and hedging against market changes (including property tax changes) that aren’t in your favor.

What if you’re deciding between buying and renting?  The jury is out on whether home prices will continue to decline.  But if you currently cannot afford the costs associated with buying a home, realize that other options exist.

For example, you can participate in the real estate market at a lower cost and higher liquidity with REITS (e.g., real estate investment trusts, which trade like stocks) and potentially receive a stream of income from your investment.  Or simply invest your money elsewhere to get the long term return that you may be seeking.

This is not intended to be the complete list of areas that you need to consider since all situations are different.  However, this may be a good place to start to begin organizing your “should be” list before the ticking clock turns into time bomb.  If it ends up being all too complicated or if you’re concerned about putting the right plans in place, then you may need to speak with an advisor that you know and trust.  That’s what we’re here for.