by-age-40

What Should I Have Done with My Money by 40?

In Articles, Wealth Management by Jenna Rogers

By Jenna Rogers, MS, CFP®
Client Advisor

 
Are you staying up at night wondering if you will ever be able to retire? Worried that you are not as far along financially as you should be? We’ve devised a road map of goals that everyone should be focusing on before turning 40. It’s never too late to start!

 
Increase Your Retirement Savings

Whether you are in your 20s, your 30s, or your 40s, it makes great financial sense to put aside as much money as possible for your later years.

You can contribute as much as $18,000 per year to a workplace retirement plan, such as a 401(k) or 403(b). If this isn’t practical, you should contribute at least as much as your company matches (often 4%-6%).

There is no magic number that everyone should have by age 40 to be on track for a comfortable retirement, because the amount each person needs varies. A good starting place is to get an idea of what your retirement will cost. Try using a retirement calculator online or talk with a financial advisor who can explain each step of estimating the cost. From there you can back into your recommended annual savings number, but a good place to start is 10% of your salary each year.

 
Dispose of Any Outstanding Debt

Now is a great time to focus on breaking down your “debt mountain”. Kids, home ownership, more insurance than ever, and college funds await you. Be prepared by clearing out old debts first.

Start reducing your debt by focusing on high-interest credit cards first, then pay off any student loans. Your 40s is ideally a time for thinking about and preparing for the future with a solid financial plan. It’s not a great time to be paying for your past.

If you have outstanding debt from your 20s or 30s, rather than taking a head-in-the-sand approach, make a plan for paying it off. Being credit card debt free is empowering!

 
Automate your Finances

Make the most of the Internet and advances in technology to not only monitor your money, but automate its flow. Saving is easier than ever. Set up recurring payments to an emergency savings account so that you can save without even thinking about it. Target 6 months living expenses set aside in your emergency savings account.

If you’re still paying bills manually, delegate this responsibility to computers by putting your bills on autopay. You’ll appreciate the time that you didn’t waste tracking down receipts and reference IDs.

 
Talk to Your Parents

In your 20s and 30s, you may have been hitting up your parents for loans, but as you move into your 40s, your mindset may shift to thinking about whether you will be in a position to help them.

While it is not a conversation that is always comfortable, it is important. If your parents are relying on help in their old age, you and they need to know so you can properly plan for it. Do your best to find out if your parents are on track to meet their retirement target. If not, look at how you might be able to help them fulfill this goal.

If your parents are not keen on talking about this with you and you are unsure how to broach the subject, you can let them know that you are working on your own finances and have been thinking a lot about theirs and want to be sure they have enough.

While you’ve got your parents’ attention, take a look at long-term care insurance too, which will help to pay for nursing or assistance with daily activities.

 
Bottom Line

Before 40, you should know how to budget, have an idea of how much you will need each year in retirement, be consistently saving each month to retirement plans (ideally 10% of salary) and be actively paying off debt. If you can do these four things, preparing for your retirement is going to be a lot easier.

If you feel you need help with any of these areas – and most people do – consider asking for professional financial advice. Doing that can help you make the most of these precious earning years, which are so important for your future and the future of your loved ones.

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