How to Build an Investment Plan for Different Life Stages

Investing is a crucial part of financial planning, and your strategy should evolve as you progress through different stages of life. Having a tailored investment plan can help you achieve your financial goals, whether you’re just starting your career, raising a family, or approaching retirement.

Here’s a guide to help you build an investment plan tailored to various life stages.

Stage 1: Early career (20s to early 30s)

Entering your early career is an exciting time filled with new opportunities and responsibilities. Proper financial planning during this stage can set the foundation for a secure and prosperous future.

Example: Susie and Max are in their twenties and recently engaged. They are thinking about paying for a wedding, a house, a new car, traveling abroad, and future children. The scope of their expenses and goals has expanded significantly. How can they manage to pay for it all while also planning for a time in their life that extends beyond such major milestones?

Building a solid foundation

Early in your career, focus on building a solid financial foundation. Begin by tracking your income and expenses. This will help you find areas to save and invest. Financial planners often refer to this strategy as “managing cash flow.”

Creating an emergency fund

The aim is to build an emergency fund with six months’ worth of living expenses to cover unexpected costs. Susie and Max might save three months’ worth as a two-income household. It is important for couples to talk about making big financial investments. They should save for these instead of using a credit card. Once they have their foundation in place, they can consider expanding their investments.

Investing early

The earlier you start investing, the more time your money has to grow. Take advantage of employer-sponsored retirement plans like a 401(k) or 403(b), especially if your employer offers a matching contribution which is essentially “free money.”

Additionally, consider opening a traditional individual retirement account (IRA) to benefit from a tax deduction in the current year or a Roth IRA for tax-free withdrawals after age 59 1/2. Susie and Max should discuss how much each wants to save in their workplace retirement account. Since they want to have children someday, they could open a 529 education savings plan to help with future expenses.

Diversifying investments

At this stage, you can afford to take more risks since you have a longer time horizon. Spread your investments across different types of assets. This includes stocks, bonds, and real estate. Avoid putting all your money in one sector or security. Consider investing in low-cost index funds or exchange-traded funds (ETFs) to gain broad market exposure. This helps with minimizing risk, especially in volatile markets.

Susie and Max could benefit at this early stage from an 80/20 investment portfolio, which has 80% in equity such as stocks and 20% in fixed income such as bonds.

Managing debt

Managing debt is crucial in your early career. Prioritize paying off high-interest debt, such as credit cards, while making consistent payments on student loans. Consider consolidating or refinancing loans to lower interest rates.

Insurance coverage

Ensure you have adequate insurance coverage to protect against unexpected events. Health, auto, and renters OR homeowners insurance are essential to safeguard your financial well-being.

Stage 2: Mid-career (mid-30s to 40s)

Mid-career is a pivotal time to reassess and refine your financial strategies. As you advance in your career and personal life, your financial goals and responsibilities evolve.

Example: Susie and Max are married with two young children. Now, after getting promotions and earning more than in stage one, they are planning for their children’s education and their own retirement. Additionally, they want to buy a new home to accommodate their family’s expansion. What financial factors might influence their ability to save and invest more?

Revisiting financial goals

Even if stage one didn’t go as well as you’d hoped, you still have time to improve your retirement picture. As you progress in your career and personal life, your financial goals may change. Revisit your goals and adjust your investment plan accordingly.

Maximizing retirement contributions

Build up your nest egg as much as you can. Increase or maximize your contributions to employer-sponsored retirement plans and IRAs. Susie is increasing her 401(k) plan contribution to 10% from 6%. Since she and Max want to purchase a bigger home, they’re keeping Max’s contribution at 6%.

Planning for children’s education

They also opened 529 education savings accounts for their children, which offer flexibility. They can determine how unused funds may transfer, such as to another beneficiary or a Roth IRA. Also, it’s a good investment vehicle for grandparents who want to help.

Explore a health savings account (HSA)

If you’re enrolled in a High-Deductible Health Plan and have additional funds, consider investing in an HSA. An HSA offers triple tax benefits: 1) contributions are not taxed, 2) your account can grow tax-free, and 3) distributions used for qualifying medical expenses are not taxed. Susie and Max aren’t ready to contribute yet but will revisit this opportunity as their children get older.

Preparing for retirement

Your retirement date is crucial as it marks a shift from contributing to your assets to distributing them. Your age and workplace benefits may lead to higher health care costs before you turn 65 and qualify for Medicare.

Adjusting investment strategies

Your investments at this stage are typically still growth-oriented, but you can start to increase the conservative portion of your investments. Risk mitigation is crucial. You want to avoid being too aggressive, as it could affect your retirement timeline.

Susie and Max will change to a 70/30 investment portfolio. This means 70% will be in stocks and 30% in fixed income.

Managing debt

Continue to manage and reduce any remaining debt, such as mortgages or car loans. Paying down debt can free up more funds for savings and investments.

Insurance review

Review and update your insurance policies to ensure adequate coverage. Life insurance and disability insurance are crucial to protect your family’s financial stability.

Estate planning

Consider creating an estate plan to ensure your assets are distributed according to your wishes. Creating or updating your wills and setting up trusts can provide reassurance and financial security for your family.

Stage 3: Pre-retirement (50s to mid-60s)

Pre-retirement is a crucial time to solidify your financial plans and prepare for the transition to retirement.

Example: Susie and Max are now in their 50s, planning for retirement while managing health care costs and maximizing their savings. They are considering long-term care insurance and catch-up contributions to their retirement accounts.

Maximize contributions

Take advantage of catch-up contributions to retirement accounts if you’re 50 or older. In 2025, an employee can put up to $23,500 into their 401(k). If aged 50 or older, they can add up to $8,000 in an IRA. This includes a $7,000 limit plus a $1,000 catch-up contribution.

Managing health care costs

Health care costs can be a significant expense in retirement. Consider investing in long-term care insurance to cover potential health care needs. Additionally, start or continue contributing to your HSA if you’re eligible. Think of it as an extension of your retirement savings.

Review your investment portfolio

You might want to lower your investment in high-risk assets. Instead, consider putting more money into bonds, dividend stocks, and other investments that generate income.

Estate planning

Ensure your estate planning is up to date. This includes wills, trusts, and beneficiary designations. Proper estate planning can help protect your assets and ensure they are distributed according to your wishes.

Stage 4: Retirement (mid-60s and beyond)

Retirement is about maintaining your financial health and managing your assets wisely to ensure a comfortable and secure future.

Example: Susie and Max are now both retirees and empty nesters. They don’t have any big purchases coming up. Their kids have finished college and are starting families. They have saved a good amount in their retirement accounts. What’s their strategy for investments and withdrawals?

Withdrawal strategy

In retirement, you’ll need a strategy for withdrawing funds from your investment accounts. Consider the order in which you’ll withdraw from different accounts to minimize taxes. You might begin with taxable accounts, such as brokerage accounts. Next, consider tax-deferred accounts like IRAs and 401(k)s. Finally, look at tax-free accounts, such as Roth IRAs.

Susie and Max will start converting their traditional IRA and traditional 401(k) to a Roth IRA but won’t take withdrawals until later in retirement as they are in a higher tax bracket and are both receiving Social Security.

Diversifying income sources

Make sure you have different sources of income for your retirement. This can include Social Security benefits, pension income, and money from retirement accounts. This diversification can help with financial security.

Susie and Max feel good about taking out 4% from their retirement savings each year at first. This percentage may go up later, based on inflation and how the market performs. The HSA they started in stage 3 will help pay for medical expenses, preserving their other assets.

Emergency fund

Keep up to two years’ worth of emergency savings. Susie and Max have a savings amount designated each month for travel as well as an amount for emergencies like house or car repairs.

Regular review and adjustment

Retirement is a dynamic stage, and your financial needs may change over time. Regularly review your investment plan and make adjustments as needed. Keep up with market conditions. Talk to a financial advisor to make sure your plan matches your goals.

Susie and Max have updated their portfolio in retirement to a 60/40 allocation. Some of their bonds have 10 years to maturity.

Don’t delay

Building an investment plan tailored to your life stage is essential for achieving financial security. By starting early, diversifying your investments, and adjusting your strategy as you age, you can navigate the complexities of investing and enjoy a comfortable retirement. Remember, it’s never too late to start planning, so act today to help achieve Economic Freedom™.

If you’re not a Mercer Advisors client and want to know more about building an investment plan for different life stages, let’s talk.

¹ “401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000.” IRS, Nov. 1, 2024.

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