Financial Life Planning When You’re In Your Late 20s/Early 30s

This article is the first in a series about financial life planning from the perspective of different stages of your career. In this first article we’ll talk about planning for professionals in their late 20s to early 30s.

Is It Too Young To Start Financial Life Planning In Your Late 20s/Early 30s?

The typical late 20s to early 30s professional is still just starting out in their career. They might still be paying off student loans, and also might have just purchased their first residence. Many are just getting married and are starting their own families. With so many major life expenses to worry about, saving for retirement and planning for the distant future is likely to be far lower in priority in their minds.

So why would someone at this age seek out a financial life planner?

Why You Would Seek A Financial Life Planner In Your Late 20s/Early 30s

We do have clients of this age level. Our typical client in this age range works at a startup that has gone IPO, resulting in valuable stock options/restricted stock units. A smaller number also reach out to us after receiving an inheritance.

Either way, from our experience, a sudden windfall in the range of one million dollars—give or take—seems to be the approximate point at which potential clients start to ask “Is this money enough to be life changing? Can I retire earlier? What other opportunities does this amount of money open up for my life?” They then seek out the services of a financial life planner in search of the answers to these questions.

Can You Retire With A Million Dollars?

While the word “million” still conjures up images of wealth, let’s get one thing quickly out of the way: one million dollars is simply not enough for a person in their late 20s to early 30s to completely retire. Retiring early is a double burden on retirement savings—not only do you have fewer years to add to your retirement savings, but you also have to make your reduced savings last longer.

One thing that a million dollars can do is to give you a tremendous head start on your retirement savings. With reasonable investment and the longer time span, the inherent advantage of compounding means that one million dollars has the potential—depending on how the market does of course— to grow into several million dollars within a normal retirement time span. This boost in retirement savings means that you can retire much earlier, or enjoy a more luxurious retirement if retaining a normal time frame.

Develop a Vision For Retirement

In their late 20s to early 30s, most clients don’t have a clear picture yet of what they want their retirement to look like. They don’t really know what they will do when they don’t need to worry about money. They’re just aware that there is a finish line off somewhere in the distance.

An experienced financial life planner can use modeling tools to show various scenarios based on target retirement age versus desired spending level once retired. As you advance in your life, your vision of retirement will also evolve, and we recognize that. We have life planning tools that will help you get started on building the foundation for what your retirement vision will eventually look like. We will also incorporate your personal goals, values, and priorities to help you craft your  personal dream retirement, give you a plan on how to attain it, and update that plan as both your vision and career evolve over time.

Living Your Best Life Now

The other thing that such a windfall can do is open up many more possibilities for the present and near future. We can use the money now to improve our current lives by, for example, buying a larger house in a more desirable area. Or we can set the money aside for something other than retirement, like starting a college education fund for the children or putting aside some money for starting/acquiring a business.

The Complexities of Having More Choices

With more choices comes more variables and a wider range of outcomes. Starting a business might sound like a great way to work, but is it worth the extra time you will have to spend on it? Would you have enough runway to maintain your lifestyle while ramping up? What if you have to put more money into it to keep it going?

Similarly, buying a rental property sounds like a nice way to get some passive income and own an asset that might be a more stable investment, but it would be a less liquid asset. You’d also have to pay someone to manage it or put in the time to manage it yourself. Could the money be better used elsewhere?

These are but just a couple of examples of new possibilities that become available with a large windfall, but

with potential pitfalls.

Best of Both Worlds

In the end, applying a financial windfall towards retirement or your present life is not likely to be an either/or decision. For most clients it will be a balance between both choices, with the exact ratio varying depending on the client’s priorities and values. We can help you sort out your priorities and determine a ratio that helps both your present lifestyle and your future retirement.

While a financial windfall opens up new possibilities that might not have been possible before, those possibilities can create a lot to think about. With the help of our financial life planning services, we can help you fully understand the options and ramifications of your newfound opportunities.