Blue Bell PWM


Investing & Money in Your 40s

November 29, 2016

Anyone who is in their 40s and is roughly midway through their career or “work-life” has faced, and hopefully conquered, significant challenges financially and in life and begun focusing on saving for major life events. These can range from the purchase of a new home to planning for a child’s education expenses but retirement planning for one’s self should be a main priority.

Many people in their 40s have a stable career and are beginning to think about saving for later in life. The biggest advice for people in their 40s is to make sure you are contributing to tax-deferred retirement plans through IRAs or employer 401(k)s or both and, if you are able to, contributing the max. For Traditional IRAs the maximum contribution is $5,500 for 2016 and for 401(k)s, 403(b)s, and 457 plans the maximum contribution is $18,000 according to the IRS website. Remember that any contributions to a traditional IRA are tax-deductible up to the maximum contribution if you qualify. Also remember that most employers that offer 401(k)s will match your contributions up to a certain percentage or amount. We always advise our clients to contribute at least to the match that their employer will offer.

Parents always want to provide the best for their children and offer them a better childhood and education than they had. The costs of sports or extracurricular activities along with any elementary and secondary education can quickly accumulate creating a daunting challenge to parents. Planning for college expenses presents another challenge as many parents in their 40s are seeing the costs for college on the horizon balloon. There are several accounts that offer education savings that can help alleviate this situation but people in their 40s should weigh the opportunity cost of diverting these savings specifically for college expenses instead of allowing their own assets to grow in tax-deferred retirement accounts and be used later in life.

There are other large financial decisions that people in their 40s can face including a mortgage and possibly caring for their elderly parents. Depending on your financial situation and mortgage rates, it may be smart to refinance a mortgage to a longer term one so that your payments may decrease in size as your income/salary increases along with inflation. Caring for parents while also taking care of children has become a common occurrence for many people in their 40s as well. This “sandwich” effect, as it has been labelled, is different from years past due to the disparity of the ages in which people now have children.

One reminder we always tell our clients is that you can borrow money for your children’s education via a loan and can take out a mortgage to purchase a home, but you will never be able to borrow money for your retirement. We always advise and encourage anyone who has the ability to start saving to do so as soon as possible. You can even read our advice for people investing in their 20s and 30s. Having a plan and executing to it is often the most important advice a financial advisor can offer.

There is no right way to tackle these challenges you will face or are facing in your 40s, but with an effective plan in place, it can be done without compromising retirement income. Now that you are halfway to retirement, why would you let mismanaged financial decisions slow you down?

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Investing & Money in Your 40s

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