3 things 30- and 40-year-olds forget when planning for retirement

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, such as American Express, but our reports and recommendations are always independent and objective.

• As a 30 or 40 year old you might be investing in your 401 (k) workplace or an IRA, but if not, you don’t know how to plan for an event until now in the future.
• As a financial planner, I recommend investing in more than your 401 (k), including a brokerage account, so that you can access the money if you want to retire early.
• It’s also important to consider when you will need to pay taxes on your retirement income, and remember that you will change over time, as will your finances.
• Use Blooom to analyze your 401 (k) today and see how you can increase your retirement savings »

If you want to plan well for your retirement, you probably know that you should start saving as early as possible and enjoying benefits like a workplace pension plan. But beyond that, it’s not easy to clarify what you need to do for an event that could take place in 20 years or more.

However, don’t let that stop you from becoming proactive and staying engaged in the process. With a little help, planning for retirement can seem less overwhelming.

You can start by making sure that you don’t leave any important planning tasks undone. Here are three things that should be on your radar, but which I often see in my 30s and 40s overlooked when it comes to saving and investing for retirement.

1. Contribute to more than your 401 (k)

Vehicles like 401 (k) plans and other tax-deferred retirement accounts, including traditional IRAs, SIMPLES, and SEPs, are very useful tools that can help you build the nest egg you need to fund your life after quitting work.

You should definitely take advantage of it, but if you only put money for your retirement years in this type of vehicle, you can limit how you can access or use those funds without penalty.

The rules for accounts like 401 (k) s say that you cannot withdraw funds without penalty until age 59 and a half (although workarounds exist, but they can get complicated and come with their own pitfalls).

This is a problem for many people in their 30s and 40s, as some form of financial independence or early retirement becomes an increasingly popular goal. And if you want to retire before 59 and a half, you need to have accessible funds outside accounts that could penalize you for having stung them before the official retirement age.

So don’t forget: contribute to retirement accounts and also other investment vehicles, such as brokerage accounts or stock compensation plans, to name just two possible options that may be available to you.

2. Take into account the tax implications of your contributions

We all know that the only certainties in life are death and taxes. Over 30s and 40s would do well to remember this when contributing to tax deferred retirement accounts.

Remember, the money you put in your Traditional or 401 (k) IRA that does not have count in taxable income for this year will be part of your taxable income at retirement. This is no reason to avoid contributing or even maximizing these accounts, but remember this reality.

It makes sense to think about how you are going to put money into various accounts that are taxed differently so that you have a mix to draw upon in retirement.

You can contribute money to a Roth IRA (or the Roth portion of your 401 (k) if your plan offers the option to split your contributions between pre-tax and after-tax dollars), or make Roth backflow contributions if you earn too much to contribute directly to a Roth.

You may also want to consider taking advantage of a health savings account, which is the only account that allows you to put in pre-tax dollars, increase your income tax-free, and avoid paying income tax. withdrawals as long as you use that money for qualified medical care. expenses (or are over 65 when you withdraw funds).

And don’t forget about taxable brokerage accounts. While you don’t get any tax benefit by contributing here, brokerage houses have no limits or rules on how and when you can use the money you invest. You can use it however you want, before or after retirement.

3. Your goals and values ​​will change over time.

The most important thing I see perhaps the 30’s and 40’s forget when it comes to retirement planning is the simple fact that life changes and evolves over time.

As Harvard psychologist Dan Gilbert says, “Human beings are works in progress who mistakenly think they are done.” Your hobbies, interests and values ​​may change. Your health could change. Your priorities may change as you accomplish and experience more throughout your 40s and 50s.

What does this have to do with your retirement planning? At first glance, it seems “not much”. But the fact that the person you are today might not have much in common with the person you will be at 65 has huge implications for your money.

No one has a crystal ball to consult to find out what kind of person they will be in the future; the only thing we can bet on is that we might not want exact same things that we desire today. And your financial plan must take this reality into account.

You can do this by building in a movement room. By allowing the financial flexibility to change your mind, your goals and how you want to use your money.

In practice, this most often looks like careful planning. At a basic level, that means overestimating your expenses and underestimating your income.

It means do not assuming everything will still go your way and work just fine. It’s saving more than the bare minimum so you have more than you need, no matter how you retire.