Your 40s are a period of financial flux. You may be entering your peak earning years, but you may also be funding your kids' college tuition and supporting aging parents. Or you might be thinking about starting a new career.
Through it all, you still need to strengthen your own savings and keep planning for the future. These four money moves will help.
Invest in your career
Are you living in alignment with your values and what brings you happiness—or do you crave a new direction? "If you want to make a change, now is the time to do it," says Shaun Melby, a certified financial planner (CFP) and founder of Melby Wealth Management in Nashville. "The closer to retirement you get, the more financially risky it is to try something new."
Over half of older workers (56%) experienced at least one involuntary job loss after age 50, and workers in their 50s, 60s, and 70s cite job loss as one of their top financial setbacks, according to a recent analysis from ProPublica and Urban Institute. It’s no surprise that 54% of adults in the labor force say it will be essential for them to get training and develop new skills throughout their work life in order to keep up with changes in the workplace, according to the Pew Research Center.
"Employees need to 'future-proof' their careers," says Sharlyn Lauby, president of the Florida-based consulting firm ITM Group Inc. and author of the blog HR Bartender. "That includes taking advantage of opportunities to learn new things, especially in the valuable areas of technology, communication skills, and critical analysis."
Workers who participate in trainings, workshops, and continuing education are more likely to be retained by their company. "Enjoying learning and applying the information shows your manager that you're trainable," Lauby says.
Plan for your children's education
You've probably heard that tuition is skyrocketing, but certified financial planner Stephanie Bacak, a college financial advisor and founder of Capstone Global Advisors in Peachtree City, Georgia, says many people don't have a grasp on exactly how steep prices are. In the 2018-2019 school year, private colleges cost twice as much and public institutions are three times pricier (adjusted for inflation) compared to 30 years ago, according to the Trends in College Pricing report from the College Board.
Consider the options available to you to help defray the costs, like a 529 plan. Your investment “grows tax deferred, and as long as you spend the funds on qualifying expenses [like tuition and school supplies], it's not taxed when you pull it out," says Bacak. She urges people to contribute at least as much as the extra tax deduction for their state to a 529 plan: "You also earn added income on dividends and interest."
Then, make a list of other goals, such as retirement or buying a new home. "Rank them in order of priority, and see where your children's education falls," says Sahil Vakil, founder and CEO of Myra Wealth in Jersey City. "Just remember that while you can always get a loan for college, you can't get a loan for retirement."
Amp up your savings
Whenever your income rises, adjust your savings accordingly. "If you get a raise, schedule all of the money—or at least a large portion of it—to go automatically towards retirement," Bacak says. "If it never hits your checking account in the first place, you won't miss it." Even a 1% increase can make a significant impact.
If you're just starting to put money away, committing now to saving a certain amount can still help you. Consider that even if you save $1,000 a month starting at age 40, you will have $806,547 if you retire at age 67, assuming annual interest of 6%, compounded monthly.
If you still need to earn more for retirement, consider taking on a side gig, too.
Budget for your parents
Nearly half of people ages 55 and older have zero retirement savings, according to the Government Accountability Office. Are your folks among them?
It's a sensitive topic, so to get started, fill your parents in on your own retirement plans. From there, segue into the status of their savings, suggests Sahil. If you discover your mom and dad aren't fiscally sound, run through your list of money goals again and see whether supporting them is something you can do. More than one-third of parents with children ages 8 to 14 also care for an aging relative, with the majority spending $1,000-$3,000 a month on that effort, according to a T. Rowe Price survey.
Not in a position to offer financial help? "Explore opportunities for them to downsize their lifestyle and liquidate assets to free up cash," Sahil says, like moving to a more modest home or selling an expensive car.
With the right money moves, midlife won’t lead to a crisis—and you can set yourself up for a more secure future.
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June 10, 2019