Financial “To Do List” Series: Managing Money in your 40s
Your 40’s are a critical decade as you continue on your path toward retirement. This important stretch of your life is one where you will likely approach peak income earnings. In approaching peak income, this is a time where you can make strong strides toward your long-term goals if you have not already started to do so.
Some helpful statistics
The Employee Benefits Research Institute has reported that 37% of all employees age 35-44 and 34% of employees 45-54 have less than $1,000 saved for retirement.
Yes, these numbers are daunting but do not lose hope.
For a 40 year old who has not started to save for retirement, setting aside $650 per month could add up to $1 million in retirement savings by the time he/she reaches 67 years old (this equates to slightly more than 15% of a $50,000 income). Remember, think time, not timing, when it comes to investing in the stock market. The more time you have on your side, the more time your money can “work” for you.
Maximization of earnings needs to be a priority in your 40s. Part of this maximization includes negotiating your salary and maybe even asking for a raise.
Some questions to ask yourself:
- Is your current salary on track to support your current lifestyle?
- Are you living within your means while at the same time setting enough aside for retirement?
- Can you supplement your income?
Take a close look at your budget – identify areas where you may be able to cut back and in turn use that money for retirement savings. Saving as much as you can should be a priority. Having a plan and continually tracking your progress against that plan is critical.
Ramp up retirement savings
During your 40s, you should also review retirement funds and how you’re using them. Are you maximizing savings wherever possible?
- The most common options are to put away as much as you can into your employer sponsored retirement accounts, like your 401(k) or 403(b) plans.
- Leverage Individual Retirement Accounts (IRAs) as a second option for retirement savings.
- Finally, set aside a taxable investment account. This account can be something that is leveraged in the early years of retirement as you continue to let your tax deferred investments grow.
Talk to parents about estate plans
Another area that is often overlooked is talking with your parents about their estate plans. The key here is to ensure that they have the proper documents in place to ensure that their wishes are carried out accordingly.
Important components to discuss?
- Medical Directives
- Power of Attorney
- Beneficiary designations (are these up to date?)
Also, do you know where to find information as it relates to their finances, estate plans or who to call? Having these conversations now will help alleviate some of the stresses later.
Stick to your plan
Yes, as time moves on there is less time for your money to “work” for you. However, each passing day does not change the importance of financial planning at every stage of your life. Be disciplined, stick to your plan. Check in regularly on your plan and update as needed - your future self will thank you!
In your 40s…..
- Put away 8% to 15% of salary
- Save extra cash when possible
- Maximize earnings: raise?
- Open taxable account – another component of retirement savings
- Talk to parents about estate plans
Please reach out to me or any member of KLR Wealth Management, LLC for questions on your individual situation.
Check out our other blogs in this series:
Published on: 06.18.18