Money in Your Forties

I remember when my mom turned 40. I was a high school senior and she seemed so old to me at the time. But I am here to tell you that 40 is NOT old. In fact, as I head towards my 43rd birthday I have a spring in my step...although that might be from chasing after my 4 year old. Anyway, I am looking forward to the opportunities that are ahead of me. I have my kids to raise, some career plans to explore, places to see, and a bucket list to complete. Your 40’s have been described as half-time in the big game of life. You have likely been working for 20+ years and you probably have the same amount of working time ahead of you. As women, we need to insure our financial stability over the next 20+ years and beyond.

In 2010, according to the Social Security Administration, the average annual Social Security income received by women 65 years and older was $11,794, compared to $15,231 for men. Why such a difference? Social Security is gender neutral; the benefit is based on income and men are still out earning women. The Social Security Administration also states that in 2010 the median earnings of working-age women who worked full-time, year-round were $36,000, compared to $48,000 for men. Also, women are more likely to take time and even years off of work to raise families thus not accruing any social security during those years.

Yet, we have dreams to achieve, choices to make, and decisions to ponder over. Would you like to make a career change? When would you like to retire? Do you want to travel? Do you want to assist with your children’s education? There is so much to consider and plan for. If you have not thought about or planned for the next 20 years, now is a great time to start.

What I Wish I Knew When I Was in My 30’s

There are many women in their 30’s who take time out of the workforce to raise their children and I was one of them. As women, we often put everyone else first and ourselves and careers on the back burner. I don’t regret becoming a full-time stay at home mom; it was a joint decision for me and my husband. It was the right thing for our family, but I do regret not realizing how powerful the 30’s decade is. Much of what you do during that time will affect your earning power later in life. As my time at-home winds down--my youngest will be in school full-time this fall--I wish I would have used those years to really think about and explore career options and opportunities for the next season of my life, my 40’s. Avoid that mistake and keep up on the latest technology and innovations in your chosen field. Explore your outside passions and invest in your own future.

What 40-somethings Should Plan For (And Why)

Calculate Your Retirement Needs An online retirement savings calculator will help you estimate how much you need to save each month to reach your retirement goal. You’ll need to think about how long you want to work for, how many years until your retirement, and what percentage of your current income you’ll need to replace.

Get Your Estate Affairs in Order Estate planning isn’t just for wealthy people. Having your affairs in order will assist your family in following your wishes and prevent the courts from making those decisions for them. There are 3 legal documents that you should consider completing. The laws for these documents vary by state, so consider hiring an attorney to assist you with the process.

  • Create a will. A will is where you designate where or whom you want your assets to go to. It is also the document where you determine the guardianship for your children.

  • Create a Living Will or an Advanced Medical Directive. The Advanced Directive is where you state your wishes in the case that you are incapacitated. How much or little medical intervention do you want applied to you on the occasion that you can’t make those decisions for yourself.

  • Assign a Durable Power of Attorney. This person or agent will see to it that your financial affairs are handled the way you specified in your will.

Make Sure You Are Properly Insured An untimely death can wreak financial havoc on an already grieving family. Life insurance can provide income replacement, help payoff outstanding debt, and cover funeral expenses.

Plan for Your Children’s Higher Education Your retirement and financial stability should be your number one priority before funding your children’s higher education. Your children can take out a student loan for their education, but you can’t take out a loan to support your retirement. However, many parents want to help their children with college, and there are other ways that you can help your children graduate from college with little to no debt.

Encourage them to start at a community college and live at home. Help them search the web for scholarship, financial aid, and grant opportunities. Teach them at a young age how to budget their money and live within their means.

Three Things You Can Do for Your Money in Your 40’s

Establish an emergency fund of 3-6 months living expenses. That might sound like a daunting task, but you are preparing for the unexpected, which could be sudden unemployment, medical expenses, home, and auto repairs. These things can happen quickly and if you are not prepared, you are more likely to reach for your credit card.

Distinguish between what is an emergency and what is a want; there is a difference. Replacing a leaky roof or broken hot water heater sounds like an emergency to me, but replacing a broken TV, not so much. Set the money aside in an FDIC insured savings or money market account that is not easily accessible, such as an ING Direct online account where it takes a few days to receive your money.

If 3 - 6 months living expenses seems too overwhelming of a number to save for, start with $1000. Have a yard sale, sell some stuff on Craigslist, or pick up a part-time job. When you hit $1000, start saving to $2000, and continue to up the amount until you get to your goal of 3-6 months of living expenses.

Eliminate your debt. Using a personal balance sheet, tally up all of your debt, such as student loans, car loans, credit cards. Your next step will be to start a debt snowball. Rank your debt from the lowest balance to the highest. While paying the minimums on all of your loans, start funneling any extra money towards your lowest balance until you pay it off. Once that first loan is paid off, start funneling that money to the next loan on your list. Repeat until you pay off your last loan.

Save for Retirement The first place to start is your employer’s 401(k) plan, especially if they match a percentage of your contribution. That is free money that you want to take advantage of. Make sure you read the plan’s literature, because 401(k)s are notoriously saddled with high fees.

If you do not have an employer 401(k) available, there are two other retirement savings options: a Roth IRA or a Traditional IRA. The advantage of a Roth IRA is that your earnings are tax-free as long as you withdraw after age 59 ½; you pay taxes on your contributions. With a Traditional IRA, your contributions are tax-deductible, but your earnings are taxed when you withdraw after age 59 ½. Which is better? That depends on what tax bracket you might be in at age 59 ½. If you think you might be in a higher tax bracket at the age of withdrawal, then it might behoove you to pay the lower taxes upfront on the contributions under the Roth IRA.

Embrace Your 40’s

Are you a bit over-whelmed by all of this? Hitting your 40’s can be a tough pill to swallow as it is and now I’m throwing all sorts of numbers and statistics at you. But our gender is amazing. We run households and birth babies. We run cities, states, and countries. We are totally capable of planning and preparing for our next half in the game of life. If all of this is over-whelming, please consider hiring a fee only financial advisor to help guide you in the right direction. But most importantly, embrace your 40’s decade, because it can be pretty awesome.