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Actions Make Smart Choices in Your 40s
Key takeaways
- You first: Put retirement funds ahead of college savings.
- Lifestyle creep can cloud your vision—and cramp your future.
- Time to have "the talk"—no, the other talk—with your parents.
Your 40s are often a good time of life, financially. Assuming your work situation is stable, chances are you’re in a good position to profit from your experience and pursue a fruitful future.
But this is also a decade when a lot starts to happen. If you have kids, they might be nearing college age—so you’ll have to consider how to combat the high costs of higher education. Meanwhile, your parents might be old enough to start needing some assistance from you—both physical and financial. And this is also a crucial time to reinvent yourself, if you’re thinking of changing careers.
Here are a few ways your financial train can jump the tracks, and some tips that may help you stay the course.
Don’t put retirement on the back burner
As your kids get older and you start to see college bills on the horizon, it’s tempting to bump up college savings and let retirement slide for a while. That might be a mistake. It’s possible to borrow (within reason) to cover college costs, but you can’t take out a loan for retirement. If you're able to, consider putting at least 15% of your income toward your golden years before you sock away anything for education. Your kids will thank you later on, when you aren’t looking to them for financial help.
Don’t engage in lifestyle creep
Your earning power during this decade is nearing its peak, and those heftier paychecks could tempt you to spring for the bigger house, fancier car, and more luxurious vacations. There’s nothing wrong with enjoying the spoils of your hard work. But the more you can avoid upsizing your bills, the more money you’ll have to put toward your main goals: college and retirement, among others.
Don’t scrimp on life or disability insurance
At this point in your life, you’re probably aware that you should have this kind of protection, especially if you have a family and a mortgage. You think: 1) If I were diagnosed with cancer tomorrow and couldn’t work, would my family be okay without my paycheck? Or 2) If the unthinkable happened, would my family be covered financially without me?
If you answered no to either question, it’s probably time to consider putting the right coverage in place. You can start with disability insurance through your employer, if available. (You can also buy disability coverage individually.)
Don’t avoid talking with your parents about finances
Your parents are probably at or beyond retirement age by now. Do you know how they’re doing? If you haven’t done so already, it might be time for a discussion (or a series of discussions) about whether they’re prepared for the next few decades, and what their wishes are for the future.
Fully seven out of 10 people who reach age 65 will need some kind of long-term services or support in their lifetime, according to the U.S. Department of Health and Human Services. It’s not a conversation you should delay. Among the topics to tackle: estate planning, financial health and where to find important documents and passwords if you need them.
Don’t change careers without doing your research
There’s nothing wrong with deciding you’d like to do something different, workwise. But before you switch tracks mid-life, spend some time researching your new direction. Talk to others in the field to make sure the day-to-day reality aligns with your priorities. Find out if you need more training or education, and factor that into your financial plan—can your savings bridge the gap? Are you willing to start over again near the bottom of the career ladder, and will that affect your retirement plans? You can also talk to a financial professional to be sure you’re covered.
What you can do next
The freedom you have in your 40s can be a recipe for a financial flourish—or downright disaster. So keep your eye on your retirement prize, while keeping the costs of protection, college, and possible elder care in your peripheral vision. If you need help finding your focus, talk to a financial professional.
Footnotes
Kate Ashford is a freelance journalist who writes about personal finance, work and consumer trends. She has written for BBC, Forbes, LearnVest, Money, Real Simple and Parents, among others.
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