Stage 3: Age of Maturity

According to French novelist Victor Hugo, 40 is the old age of youth while 50 is the youth of old age. No matter how you describe it, however, the painful reality is that old age is mentioned more and more frequently when talking about those who are 45 to 55 years old.

Getting older for people in this age group is a mixed blessing. On the plus side, people tend to reach the peak of their careers and earning potential during this period. At the same time, they continue to amass personal possessions and wealth.

On the down side, the demands on financial resources may increase dramatically as well. For those with children, for example, the cost to support them continues to increase, especially if they are heading off to college. Moreover, people may find their financial situation significantly changed as a result of divorce, remarriage, career changes or anything else that can be lumped under the mid-life crisis umbrella. Also, individuals or married couples in this age group may find themselves pressured to support their own aging parents. Overall, however, most people probably consider themselves to have "arrived" at this point.

Although they theoretically may have more money, people at this stage of the life cycle model of retirement planning don't have much time left to make something happen for retirement. Having 10 to 20 years before retirement may seem like a lot, but it really isn't for successful retirement planning. Consider the table and corresponding example below.

As the table above and example below illustrate, there is a point when your practical ability to reach your desired retirement goal will fall short. Because of time limitations, your only options may be to increase your retirement savings, postpone retirement, or retire as planned with less financial security.

Example Robert Brown and his wife, Whitney, have not really thought much about saving for retirement. At 54, Robert has seen the light and determines that he would need $500,000 at 65 to retire comfortably. In order to save the required amount, he and his wife have to save $30,040 ($6,008 from the table above x 5) each year. Unfortunately, Robert only makes $50,000 a year before taxes. His employer's retirement plan allows him to save 14 percent of his gross income on a pre-tax basis, which comes to $7,000. Assuming that his remaining $43,000 of yearly income is taxed at a total tax rate of 40 percent, the remaining amount of retirement savings he needs to save each year, $23,040, must be taken on an after-tax basis from his remaining after-tax income of $25,800. This leaves a whopping $2,760 for Robert and Whitney to live on each year before retirement. After careful consideration, the Browns determine that this is not an acceptable change to their lavish lifestyle. To supplement their income, Mrs. Brown will reenter the workforce on a full-time basis and continue working after Robert retires.

Whatever you do, don't throw in the towel thinking that, if you can't reach the goal you want, there is no sense to save at all. Although it's true that your options become increasingly limited the later you start saving, your situation can only get worse if you have nothing to fall back on. Also, your income may continue to rise, providing more money for you to save toward retirement.

Tip Another way to increase your retirement savings rapidly is to invest in stocks with high-yielding rates of return. This is not a unique theory, and is shared by every individual with a gambling addiction. Investments, like gambling, involve risk. It is foolhardy and poor reasoning to think that you can quickly make up a shortfall in your savings by just investing in riskier investments that supposedly provide a higher rate of return. It is just as likely that such high-risk investments will fail, leaving you in a worse position than before. The closer you come to retirement, therefore, the more conservative your overall investment strategy should be. You may still have a small percentage of your retirement funds invested in high-yield assets, but you must never ignore your need to be able to recover if something goes wrong (like a market correction that keeps decreasing stock values for six months).