Top 5 Financial Moves in Your 40s and 50s

A few weeks ago, we published a post on the top five financial moves that you can make in your 20s and 30s, but what about those who have managed to survive those decades and crossed into their 40s and 50s? How can you best pursue financial success in this phase of life?

#1 Keep Saving for Retirement (and College Too).  While house and child expenses might cause cash flow to seem particularly tight for many people in this phase of life, it is essential to keep saving for retirement, especially if you had a late start in building retirement savings due to graduate school, periods of unemployment, or other obstacles in your 20s and 30s.  We discussed how much to save toward retirement in an earlier post.  High income earners need to be particularly vigilant in maxing out contributions to employer-sponsored retirement plans and saving additional funds in a taxable account as well to ensure they will have enough funds to support their current standard of living during their retirement.  Similarly, those with children should plan to save early and often for college expenses.  As Mike and Glenn have observed based on recent experience, colleges really do want the money!  If you’re wondering how much to save, check out “College Funding: How Much Is Enough.”  (And be sure to read the article to the end.  While the savings targets in the chart might give you a minor heart attack, you may be consoled by the last section on the positive impact on cash flow of having a child go to college.) 

#2 Expect the Unexpected.  If you managed to skate through your 20s and 30s without any job loss or other interruptions in income, be grateful but not complacent.  Most people go through transitions in life–whether personal, professional, or medical–that are detrimental to their financial resources.  For some clients, this has occurred toward the end of their career (in their mid to late 50s) in which they faced unexpected health issues or being forced out of a job prior to retirement and having trouble finding a position with equivalent pay and benefits.  You should mentally and financially prepare for such possibilities by pursuing #1 (above) and by making careful decisions with respect to lump sum purchases.  For example, some clients purchase a second home or a more expensive primary home in this phase of life, and then face financial stress and possibly delayed retirement when disruptions in income or other plans occur.

#3 Do a Financial Plan.  If you have not already done so, now is the time to create a financial plan to guide your savings and expenses through the remainder of your career.  Most people spend more time planning a one week vacation than they do to plan 20 or more years of retirement.  Don’t just wing it when it comes to college funding, retirement, or other financial goals.  The amount of time available to make up for any shortfall in savings is dwindling.  And, unfortunately, even after paying for college, major lump sum expenses may still loom on the horizon.  (Do you have any daughters who may want to have a wedding some day?  Have you dreamed of taking exotic vacations early in retirement?)  Engage a financial planner, or, at the very least, use resources available through your employer retirement plan, to make sure that you are on track and won’t need to considerably tighten your belt in retirement.

#4 Evaluate Your Insurance Needs.  Throughout this phase, protect your loved ones by being aware of you and your family’s life insurance needs as compared with your current coverage.  Perhaps you have changed jobs and your employer-provided life insurance has changed.  Perhaps you obtained a private policy earlier in adulthood and have had children (or additional children) since that time.  Whatever the reason, you should regularly check that your coverage matches current needs.  As you age, the risk of disability increases.  Make sure you understand your employer’s disability insurance plan.  If they don’t offer one, consider getting a policy through an association that you belong to.  If neither option is available, consider a private disability policy.  These can be expensive but you need to protect yourself for the potential loss of income if you cannot work.  In addition, as you approach age 50, consider obtaining long-term care insurance.  Purchasing a policy that would cover a portion (rather than all) of your costs at a long-term care facility would still ease the financial burden on you and your family if the need arose.  

#5 Talk with Your Parents about Their Financial Status.  Although reactions to this conversation may range from awkward to hostile, it is important to talk with your parents about their financial status.  You need to respect their privacy as you expect them to respect yours, but you can still have a discussion about their plan.  One way to approach the topic is, after you have created or recently reviewed your estate plan, ask them about theirs.  Even if you refrain from asking exactly how much money they have, knowing whether their income will sustain them through retirement, what types of assets they have and where they are held, what types of estate planning documents they have in place, etc., could save significant time and stress down the road.

As always, if you have questions about how to pursue any of these financial moves, give us a call.  We have experience with all of these issues and would be happy to help!