The Big Five Financial Stages of Life

The Big Five Financial Stages of Life

Published: Oct 9th, 2020

Money isn’t the key to happiness, but it requires attention. Doing the right things with money at these five crucial financial stages of life can make a big difference in the quality of life through the decades. These are general observations. Everyone has unique circumstances, so consult a professional financial advisor and tax expert to create the best plan for you.

Depending on your age you may have already passed through one or more of these stages, but you probably know someone younger who can benefit from all of these suggestions. 

First Real Job

When you land a full-time job with benefits, you should count your blessings, but also watch your money. Make a budget and stick to it. Live within your means, so you can make your student loan payments and pay other bills on time. If your employer offers a 401(k) or 403(b) plan, participate. It may seem odd to start planning for retirement at this early stage, but starting early takes advantage of the time to build savings for a comfortable retirement when the time comes.

If you don’t have an employer-sponsored retirement program available, try to set aside 5-10% of your pay in a tax-advantaged plan like an IRA. Try not to add to debt at this stage. Instead, build a good credit score by paying down debt you have.

Partnering Up and Having Kids

Expenses go up as your family grows. If you could not make the maximum contributions to your retirement plans earlier, do it now. In addition, save six months to a year of living expenses in an emergency fund. Consider long term disability and life insurance.

You should have a will in place and consider putting together a trust. A will is important, especially if you have children. If both parents have passed a plan needs to be in place to benefit your children.  Your documented preferences will ease the stress on the extended family. Perhaps the most significant reason for having a trust in place is to guarantee your children will receive their inheritance without any difficulties. Trusts will also shield assets from creditors. Plus, trusts will reduce estate taxes and eliminate the probate time.


At age 50, evaluate your savings and retirement plans. Make catch-up contributions if you are behind. Adjust plans to account for major expenses like college tuition and increased health care costs. Maintain a portion of your portfolio in funds that can appreciate to take advantage of the time you have for the growth of your assets.

This is also a great time to plan for the costs and burdens of aging. You have already noticed changes in your health and body at this point. You will see even more changes as you get older. These changes will lead to long-term health care. This care is expensive and can place tremendous burdens on your family. 

For many people, affordable Long-Term Care Insurance will be part of the plan. You can research more about long-term care planning by clicking here

Early Retirement

Woo-hoo! You made it! Your biggest task is to resist the temptation to overspend. Be conservative in what you draw from your retirement savings. Focus on your major goals rather than frittering money away on little things. 

Many early retirees are still full of energy and take “third act” jobs to keep their hand in the working world, or even start new businesses of their own. But be careful not to invest in overambitious or unrealistic plans.

Talk to your financial advisor about your asset allocation again. Consider dialing back more of a “protect and earn” strategy. You may also need to amend your will and trusts if you have grandchildren to consider.

Late Retirement: Death and Taxes

Prepare for the inevitable. Health care costs will rise as you age. Talk to your financial advisor about tax strategies and maintaining an income. If you have not already done so, consider downsizing. Depending on your health and independence level, you may need to consider a senior community or an assisted living facility. 

You may need to adjust your budget and adopting a tax strategy that keeps you in a lower income bracket. You may have to start taking Required Minimum Distributions (RMDs). RMDs are the minimum amount you must start withdrawing from qualified retirement accounts once you reach age 72. The RMDs will create a tax event. 

The five financial stages of life demand planning. When you do plan, no matter what stage of life you happen to be in, you can enjoy the best things about life with less worry.

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