This post was developed via a partnership with BetterHelp.
The years between the ages of 40 and 50 are when most people reach their highest earning potential and begin investing for the future.
However, we all know that life happens. Financial advisers say that while most 40-year-olds understand the importance of saving for the future, only a small percentage have taken the necessary steps to do so.
Many people in their forties and fifties still lack a well-defined retirement plan. Those who do not save enough. Big expenses, like paying for your child’s university education, can make it tough to accumulate a sizable nest egg at this point of life.
People do their best, save what they’re able to and then tally their winnings later when they have more time. However, you must determine how much they will require in retirement and how much you can take from their resources to support your standard of living. Your saving habits may need to go into overdrive, but many 40-year-olds are still plodding along in first gear. If you’re struggling to get the drive to save money, check out some of the articles from BetterHelp about ambition.
Eliminate All of Your Debt and Save Up to Your Maximum Limit
Even in your forties, your credit card debt can soar to unprecedented heights. One of the biggest obstacles to saving for retirement is this problem. To save money, choose a low-interest balance transfer credit card.
Since at least 15 to 20 years ago, if you’ve been saving at least 10% of your salary, congratulations! Changing a few habits may be all that is required to meet your financial objectives. It will take a lot of effort to get to the finish line if you’ve disregarded retirement in any other way.
In order to accumulate $1 million by the age of 67, a 40-year-old woman must set aside $10,000 annually for the next 27 years while also earning an annual percentage rate of 9%. Impossible? I don’t know. You’ll have to cut back on expenses and make some painful decisions, though.
First and foremost, make sure you’ve maxed up your 401(k). To put that into perspective, it will be $19,500 in 2020 for someone under the age of 50. Increasing your contribution by just 1% can have a significant impact on your retirement savings while costing you very little in terms of income.
Put Your Money to Work on Your Own Terms with an IRA
Traditional or Roth IRAs may be viable options if you do not have access to a company retirement plan, as well as in the event you do. If you don’t have an IRA, you could be losing out on tax benefits that come with having one.
Taxes will not be paid on future earnings in a Roth IRA, for example. However, keep in mind that you must meet certain income requirements before you may save in a Roth IRA.
Maintain a Well-Balanced Portfolio and Minimize Risk
The importance of asset allocation and diversification has not diminished. You have a long way to go before retiring at 40, so don’t rush into anything.
As long as you have more than two decades to go before you retire, it makes sense to invest extensively in equities. Stocks have a high degree of volatility, but they also offer one of the strongest long-term total returns of any investment. Even though some of your portfolio may be shifted to more conservative assets like bonds, you’ll still need a substantial portion of your portfolio to be invested in stocks.
Limit your stock holdings to 80% of your portfolio and investing the rest in bonds and other safe investments
Bonds will lower your portfolio’s overall return, but they will also lower its risk. Consequently, your portfolio will be less susceptible to the stock market’s erratic swings.
All of your Assets Should be Visible to You At All Times
Make sure to keep an eye on all of your assets as you re-allocate them. Focusing solely on the 401 isn’t enough (k). Consider all of your investments.
Don’t forget about any 401(k)s or other benefits you may have accrued during your previous employment. In the event that you’ve got an old 401(k), you can convert it into an Individual Retirement Account (IRA).
It’s a common occurrence: individuals forget about their 401(k)s. Their vacations take precedence over their retirement plans.
Face Up to the Realities of Your College Spending
Ideally, parents in their 40s with children have been setting money aside for their children’s future education since they were infants. If this is the case, they won’t have to dip into their retirement resources to make up the difference.
Those who haven’t saved enough for college and retirement may not be able to afford both at the same time. Financial advisers agree that planning for your retirement should be your top priority as a parent.
Even parents with children who have previously completed college make financial sacrifices to aid their children.
When faced with a difficult decision, most people choose to put the needs of their own children first. They’ll put their own interests ahead of their own. As a result, they’ve come to terms with the reality of having to put in more hours than they had anticipated. They could also tolerate a lesser standard of living. It has a lot of power.
Rather than paying for a pricey private or out-of-state college for your child, consider alternatives that will have less of an impact on your retirement savings if you are committed to helping your child but cannot afford to do so.
A Financial Advisor Can Help You
If all of this preparation is too much for you, consulting with a financial advisor may be the best course of action. Financial advisors that have been in the business for a long time have seen it all and can help you achieve your financial goals. The financial planners will be able to assist you balance your needs and your finances by establishing your priorities, such as saving for retirement or college.
When it comes to getting your finances in order, they will be able to do it while you still have time to accomplish your goals. Keep in mind that a fee-only adviser, such as one who works on an hourly basis, is the best choice. They are more likely to avoid conflicts of interest than those who are paid by large financial institutions. You want someone you can rely on to look out for your best interests. Additionally, you should look for the following qualities in a financial advisor.
A robo-adviser is a terrific alternative if you’re searching for someone to oversee just your financial strategy. If you’re looking for an investment strategy that’s tailored to your time frame and risk tolerance, you may want to consider a robo-advisor. Compared to an actual person advisor, here’s how an automated advisor performs.