If you’ve recently celebrated the big 4-0, congratulations! For the
next several decades, you’re going to get happier, and experience less
stress. (At least that’s what the studies say!)
Of course, this does not exactly give you license to just sit back
and take it easy. You’re about halfway through your working life, which
means that you have half the time left to pull in the money that will
sustain you for the rest of your life.
And, not to be pessimistic (although pessimism can be good for your
finances), but that’s only true if you work until your intended
retirement age. Unfortunately, a lot of people face early retirement—or
can’t get hired at all in their later years, as one manager revealed to
us.
But we’re here to talk about solutions, so we’ve rounded up the seven
most common financial challenges facing people in the 40+ set. Our
goal: ensure that your 80-year-old self can sit in a rocker and watch
the clouds drift by.
1. If You’ve Been Avoiding Your Finances Entirely …
Think your financial situation is bad? Well, whatever you fear now is
better than the situation you’ll face if you put this off for another
year. So here’s how you can take action today:
- Review how much you have saved for retirement.
- Check your savings to determine just how many months you could fund
basic expenses if you lost your job (we recommend at least six).
- Figure out if you’re in debt, and if so, how much you’ve accrued.
- Get your credit score via the steps in this checklist.
And the key to healthy asset growth is simple: You need to stick to a
budget, which will ensure that you spend less than you make, and save
for the future. But how much, exactly, should you spend on dining out
versus contributing to savings? The 50/20/30 Rule will tell you–and
Money Center users will automatically be guided in how to set up their
budget according to this rule.
2. If You’re Living Beyond Your Means …
Keeping up with the Joneses is a human tendency—not a personal
failing. We’ve got an entire article on how to cure comparisonitis, but,
in short:
- Forgive yourself.
- Pinpoint what you envy. It may not be your friend’s six-figure salary, but it could be her intrepid travels.
- Be grateful for what you already have.
If you’re in debt, use this checklist to get out—and make sure that
you know the top debt mistakes. For some added inspiration, check out
how these people got out of debt, whether it was $20,000 or $60,000.
Then look into making more money. You can start by reading our
Negotiating 101 guide, as well as get tips from real people who’ve
gotten raises.
Finally, cut your costs. If your mortgage is too high, refinance. If
your utilities bill is too steep, rethink your energy efficiency.
3. If You Aren’t on Track to Save Enough for Retirement …
The amount you need to squirrel away for retirement is the largest
stash of money that you’ll ever need to save. To find out if you’re on
track, do you know how much …
- you need to save in order to support yourself for 25 years or more?
- you need to put away every month in order to reach this goal?
- you’ll need to live on every month in retirement, taking inflation into account?
If you don’t know the answer to each of these questions, you must
start contributing–or increase your contribution–to your retirement
account(s) today.
If you have a full-time job, start contributing at least 5%—or more,
if you can swing it—into your 401(k) or other employer-based account.
And those with and without full-time jobs should also boost their IRA
contributions—up to the limit. If you’re unsure of the kind of accounts
you need, use these 401(k) vs. IRA flow charts to find out, based on
your tax filing status:
If you haven’t opened an IRA, use this checklist to learn how to open an investment account.
4. If You Have Young Children or Plan to Have Kids …
Your biggest challenge is college tuition fees, which will hit you
around the same time that you’re in the home stretch of saving for
retirement. Your top takeaways:
- Between saving for retirement and saving for college, retirement
takes priority. Why? While there are loans for college, there are no
loans for retirement.
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- You can, however, save for retirement and college at the same time.
Create a budget by calculating how much you need to contribute to
retirement each month, compared to college contributions.
If you’re expecting, consider taking the Baby on Board Bootcamp to find out how to accommodate your little one financially.
Finally, do this incredibly important thing: get life insurance. Need
convincing? Read how life insurance saved this family, and then check
out our Life Insurance 101 guide and this checklist.
5. If You’re About to Pay for College …
If your little ones are, well, big, then you need to know how to take
out student loans smartly, and how to apply for financial aid. (Review
these top student loan mistakes, so your kid gets the right education
for the right price. And be aware that private student loans are a
bigger financial burden than federal aid.)
Don’t let your child become another statistic in the student loan
crisis–or one of the 20-somethings out there with high debt and few
employment prospects.
The top things to consider:
- The amount of the loans vs. the earning potential of the student
post graduation: Does it make sense to take on $150,000 in debt for a
job that maxes out at $35,000 a year
- Should your child start out at a junior college or a community
college and then transfer to a four-year university? (Many community
colleges also now offer four-year degrees through reciprocal programs
with state universities.)
- Can your child work part-time while in school or do a work-study
program? Both of these opportunities will teach your kid the value of
time management—and offer practical work experience.
Finally, if you’re a little late to the 529 game and wondering if
opening one now still makes sense, check out Saving for College 101.
6. If You’re Getting Back Into the Workplace …
After taking a few years off, your top financial priority should be
to save for retirement, since you may have some catching up to do. Here
are some tips for your re-entry to the workforce:
- Don’t discount experience from outside the workforce. You
were likely exercising some skills that would be of interest to a
potential employer—whether you coached a team or organized an event for
your child’s class. Explain in your résumé or cover letter how these
skills could translate to the job opening.
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- Evaluate all job offers carefully—even those with low salaries. Generous benefits could make up the difference.
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- Negotiate. Brush up on your negotiating skills, learn this interviewing tip and pick up these secrets from hiring managers.
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- Excel on the job. Check out these tips from bosses, and learn what steps you should take to get set up at your new job.
7. If You’re Starting to Take Care of Your Parents …
Make sure that you have all of the financial, medical and legal information you need, such as:
- their bank accounts and passwords
- the names and contact info for financial professionals, such as
attorneys and brokers, along with permission granted for you to speak
with these advisors
- insurance policies
- tax returns
- medical records and contact information for primary and specialty physicians
- estate planning documents, including wills, trust documents and powers of attorney
- regular bills that need to be paid, like utilities and newspaper subscriptions
Start accompanying your parents on visits to financial advisors,
doctors or attorneys. And be wary of anyone who refuses to let you
join—unscrupulous people may try to take advantage of your parents if
they think that no one is watching.
If you’re researching long-term care options for your parents to
cover medical and non-medical needs for long periods of time, be aware
that, in most cases, Medicare won’t pay for long-term care—so evaluate
other resources, such as veterans’ benefits. If you’ve heard that you
need to encourage your parents to “give away” or “hide” resources in
order to qualify for Medicaid coverage of long-term care expenses,
consult an attorney who specializes in elder care for proper guidance.
Retirement and Beyond
Now that you’re 40, you may also be thinking about your own needs
down the road. While you’re still young and in good health, it may make
sense to purchase long-term care insurance. In addition, now is a great
time to make sure that your own legal documents are updated, especially
if you’ve had kids or if you’ve gotten divorced since you drafted your
will. Also, double-check those IRA accounts or you may end up
disinheriting your current spouse in favor of your ex!
Remember that your top financial goal as you head into the last half
of your working years is to save for retirement, followed by
prioritizing for your child’s college education, your parents’ long-term
care options and any student loan debt that you still owe.
And remember that every money challenge is temporary and can be
handled–the way countless other people have managed it before you.
source: foxbusiness.com
