For years, the financial responsibility for retirement has been shifting from the employer to the employee, which has led to large numbers of investors fending for themselves.
Hungry for direction, they buy glossy money magazines, scan Web sites for advice or watch financial networks for analysts' latest recommendations. And these sources can be helpful.
But a critical component to making savvy investments can be answered only by the individual. A person's age and changing financial goals and responsibilities throughout life are far more important to wise investing than, say, price-earnings ratios or the latest hot stock.
A 30-year-old with a goal of buying a first home and just beginning to save for retirement, for example, needs a different financial strategy than a 60-year-old retiree wanting to trade in a house for a boat now that the children are grown and gone. Even so, age and changing goals can be easily overlooked when bombarded with one-size-fits-all answers to investments and financial planning."`The Best Mutual Funds Now!' stories are not really appropriate for people in different financial situations and ages," said Jordan Goodman, author of "Everyone's Money Book" and former investment reporter for Money magazine. Those articles likely focus on growth-oriented funds that may be suited for someone in their 20s with time to weather market volatility, but far too risky for a retiree on a fixed income, he said.
"Age should be a prime factor [in financial planning]. It either gives you more or less time to recover when you've done something wrong," Goodman said.
Financial advisers say a client's age shapes the advice they dispense. For instance, clients in their 20s are just starting their careers. They may be saddled with student loans or credit-card debt. They may think they don't earn enough to start saving. And often retirement seems too far off to worry about.
With younger clients, it's important to get them to start saving and investing, even if it's only $100 a month, said Barry Glassman, a financial planner with Cassaday & Co. in McLean, Va. "It's better than nothing and it adds up."
By the time people reach their 40s and 50s, they are in their peak earning years and take financial planning more seriously, financial advisers say.
"For a lot of people, the light bulb has turned on," said Sue Stevens, a financial planning specialist with Morningstar, the mutual fund rating firm in Chicago. At this stage, retirement is no longer an unimaginable prospect, and shelling out for children's college education may be at hand.
"You see all the things that can go wrong that you never realized. You lose your job six years before you wanted to retire. You become disabled, and disability is not what you were planning on," Stevens said.
And, during these middle years, they also have a clearer view of what financial hurdles are in store for them by looking at what their parents or other older friends and relatives are going through, she said.
In the 60s or later, retirement arrives. People may have to decide what to do with a lump-sum pay-out from an employer or the best way to draw money out of retirement accounts. Growing health care costs may become a concern. Investments can't be as aggressive as they were decades ago, but assets must be protected perhaps for decades from inflation erosion, experts say. "A lot of people are afraid they will run out of money," said Stevens.
For those who have built up assets, estate planning and shielding money from hefty estate taxes becomes a concern. For others, enjoying the fruits of the years of labor is an adjustment.
"It's an awkward time for people, especially the prudent saver" who has amassed $800,000 to $900,000 in various retirement accounts, Glassman said. "They have that amount because they didn't spend it. It was sacred. Now I have to educate them that it's OK to take money from these places. It's psychologically a big hurdle."
Because goals and financial situations gradually change over the years, people need to re-evaluate their planning at least once a year, preferably more often, Goodman said. Most ignore this annual task, though, and wait until a major life event, such as a marriage, birth of a child or the death of a spouse, to reassess their plan, he said.