Building Financial Security: Key Milestones at Every Stage of Life

By Callie Morgan, CFP®

Financial planning is a lifelong process, and certain milestones serve as critical checkpoints for reviewing and adjusting financial goals. Whether you are just starting your career, raising a family, or preparing for retirement, taking proactive steps at key life events can ensure long-term financial stability. This article will walk through some focus areas at various ages and life stages to help one evaluate and keep their financial plan on track.

Early Career (20s – Early 30s): Building a Strong Foundation

Key Life Events:

• Entering the workforce
• Moving out on your own
• Paying off student loans
• Buying a first home
• Getting married

 Financial Planning Priorities:

• Budgeting and Saving – Establishing good financial habits especially at a young age is extremely important.  One can accomplish this by managing and tracking expenses and being mindful of where dollars are going.  There are many wonderful budgeting apps or software available that are free or have a small subscription fee, such as Every Dollar or Mint. Utilizing an Excel spreadsheet can also be a handy tool to track expenses. It is essential to build an emergency fund.  A typical recommendation for a household with one (1) income stream is to have at least six (6) months of expenses saved in an emergency fund.  On the other hand, the recommendation for a household with two (2) sources of income is to have at least three (3) months of expenses saved. 
• Debt Management – Focus on paying down debt after building the emergency fund.  There are several ways to accomplish this, but we will focus on two of the more popular methods; snowball and avalanche.
  • The snowball method is where a person focuses on paying off the smallest debt first, regardless of interest rate, and then after paying off the smallest debt, those payments are used to help pay down the next debt creating a snowball effect.  This method is excellent for those who want to feel quick wins by paying off the smaller debts.
  • The avalanche method is where a person focuses on paying off the debt with the highest interest rate by applying extra payments to the principal and making the minimum payments on the other debts.  This method is a great way to save more on interest expense since the primary focus is paying off debts with higher interest.   
• Retirement savings – Saving early is extremely important and allows one’s investments to grow and compound over time.  As individuals enter the workforce, it is encouraged to at least contribute enough to the employer sponsored retirement plan to receive a match, if offered.  For example, if the employer provides a 3% match, at least contribute 3% so you are taking full advantage of the “free” money.  If possible, strive to save 10%-15% of income whether that is in a qualified retirement account, savings account, taxable account, or a combination of account types.  If your employer does not offer a retirement plan, opening an Individual Retirement Account (IRA) can be very beneficial.  
• Insurance protection – An individual should also utilize the employer’s health, life, and disability insurance options to help mitigate against any risks that may arise.  Those with dependents should consider an additional life insurance policy outside employer options.  Although these policies can be more expensive, policies purchased privately stay with the owner until the policy terminates.  A good rule of thumb for life insurance is to have at least 10 to 12 times annual income.  For example, if your annual income is $90,000, it is recommended to hold at least $900,000 in life insurance.   
• Credit building – Building and maintaining a good credit score is also important during this life stage. Be sure to make payments on time and manage credit utilization on credit cards.  The average credit utilization ratio is to keep the balance below 30% of the credit limit.  For example: if the credit card limit is $5,000, the balance should be no more than $1,500 at any given time to maintain 30% utilization. 

Family & Career Growth (30s – 40s): Expanding and Protecting Wealth

Key Life Events:

• Career advancement
• Having children
• Buying a larger home
• Starting a business
• Divorce  

Financial Planning Priorities:

• Wealth Accumulation – As an individual begins to receive annual pay increases, it is advantageous to increase contributions to retirement accounts.  For example, suppose one expects a yearly increase of 2%, and they are comfortable with their current lifestyle.  In that case, they can increase their retirement contributions by 2% or if needed, they could split the increase between their take-home pay and contributions to their retirement account.  In this stage, the recommended savings rate is 15%-25% of income, periodic check-ins and annual contribution increases to retirement accounts will help steer individuals to reach an appropriate savings rate. Reviewing the investment strategy is equally as important; seek guidance from a financial advising team to understand how assets are invested and if there are any necessary changes that should be made to the existing investment allocation. 
• College savings – For those who have children and anticipate future college expenses, they should consider opening a 529 plan or other education savings account.  Regular contributions can grow significantly through compounding and investment growth.  The best part about a 529 plan is the investment strategy; the account holder can choose an allocation that updates as the beneficiary ages, taking the guess work out of how the account should be invested. Starting early helps reduce the financial burden of paying for college expenses when children reach college age.   
• Estate planning – Having a comprehensive estate plan in place is essential to safeguard assets and ensure they are distributed according to wishes.  Creating a will is a fundamental step that outlines how property and financial resources should be allocated among beneficiaries.  This is particularly important for families who have minor children, as a will is used to appoint a guardian over the minor family members.  Establishing powers of attorney and healthcare directives, in addition to a will, can provide clear instructions in the event of incapacity.  Proper estate planning helps minimize legal complications, reduce potential taxes, and offer peace of mind.   
• Insurance adjustments – Adjusting insurance becomes crucial to cover growing responsibilities and assets adequately.  As careers advance and families expand, increasing life insurance coverage ensures financial protection for dependents.  Reviewing and updating disability insurance helps safeguard income in case of unexpected health issues.  Homeowners and auto insurance may also require adjustments as property values change, and when new drivers are added to the home.  An umbrella policy is a great risk management tool to consider during this life stage.  This type of policy provides additional liability coverage beyond the limits of standard insurance policies, protecting against major claims and lawsuits. 

Peak Earning Years (40s – 50s):  Maximizing Savings and Preparing for the Future

Key life Events:

• Paying off major debts
• Planning for children’s college expenses
• Assisting aging parents
• Considering early retirement

Financial Planning Priorities:

• Retirement Catch-Up – Maximizing retirement contributions and utilizing the additional catch-up contributions become an essential strategy for boosting retirement savings.  Individuals aged 50 and older are eligible to make additional contributions to their retirement accounts such as 401(k)s, 403(b)s, 457(b)s, and IRAs.    
• College funding – Finalizing college expenses becomes a priority as children approach higher education.  Reviewing and consolidating college savings, such as 529 plans or other investment accounts, helps determine how much funding is available and whether additional resources are needed.  Exploring financial aid options, scholarships, and student loans can bridge any gaps.
• Long-term care planning – Plan for long-term care needs to protect retirement assets and ensure quality of care if needed.  With healthcare costs rising annually, historically averaging around 5-6% inflation – projecting future expenses is important.¹ Long-term care insurance, hybrid life insurance with long-term care riders, or self-funding strategies can help cover costs associated with nursing homes, assisted living, or in-home care.  Early planning helps lock in more affordable premiums. 

Pre-Retirement & Retirement (50s – 70s+):  Transitioning to Financial independence

Key Life Events:

• Retirement planning adjustments
• Receiving an inheritance
• Reviewing Social Security and Medicare Options
• Planning for required minimum distributions (RMDs)

Financial Planning Priorities:

• “Super” Retirement Catch-Up – Beginning in 2025, individuals aged 60, 61, 62, and 63 are eligible for “super” catch-up contributions in employer-sponsored retirement plans, which are in addition to the regular and 50+ current contribution limits.    
• Retirement Income Strategy – Creating a diversified income stream from sources such as Social Security, pensions, retirement accounts, and taxable investments will help one minimize taxes and maintain income longevity.  Implementing a withdrawal strategy – like the 4% rule or bucket strategy – helps manage cash flow while preserving the principal. 
• Social Security Optimization – Deciding when to claim Social Security can significantly impact the amount of benefits received.  Claiming early at age 62 results in a permanent reduced monthly benefit, while waiting until full retirement age (66-67) or even delaying until age 70 can maximize monthly payouts. 
• Medicare & Healthcare Planning – At age 65, individuals become eligible for Medicare, which covers a significant portion of healthcare costs but does not cover everything.  It’s crucial to evaluate and enroll in the appropriate parts of Medicare (Parts A – hospital coverage, B – medical insurance, C – Medicare Advantage (private insurance), and D – prescription coverage) to ensure comprehensive coverage.  
• Estate & Legacy Planning – Review and update wills and beneficiary designations, establish trusts, and review other estate planning documents, such as powers of attorney and healthcare directives to ensure all wishes and goals will be met.  This is also a great time to consider and evaluate potential estate taxes and charitable giving strategies.   

Conclusion

Although each stage mentioned above provides necessary considerations, regardless of age, financial plans should be reviewed annually to adjust for changes in income, expenses, investment performance, major life events such as marriage, divorce, childbirth, job change, or inheritance, and when tax laws or financial regulations change.  By working with a team of financial specialists and staying proactive, individuals can ensure their financial plan evolves with their life circumstances, keeping them on track to achieve long-term financial success.  Reach out to a Southside Bank Wealth Management & Trust Officer today to learn more.  

¹https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet

The information provided in this article is for general informational purposes only and should not be construed as financial advice. Before making any financial decisions, it is strongly recommended that you consult with a certified financial planner™, attorney, accountant, or another trusted financial professional to assess your individual circumstances.

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