Secure Your Financial Future – 4 Ways to Manage Your Money in Your 40s

Your 40s are an ideal time to assess your current financial situation and see if you are on track to meet your future financial goals. If your plan is off track, you can take the chance to pivot to make sure you reach your goals.

Here are some tips for optimizing your financial plan during this crucial time.

Make Retirement a Priority

While you may have been required to pinch pennies as you became established in your career during your 20s and 30s, your 40s can be a time of higher earnings. It’s also time to take that earning power and prioritize your retirement.

If you haven’t already, focus on paying off any debts. A study found that 55% of individuals who entered their retirement years still paying on a mortgage were unable to maintain consistent spending levels throughout the first five years. This is a critical time for retirees, as those who exceed their means are more likely to require spending cuts of 50% or more later in life.[i]

It’s also a good time to review your investment portfolio. Make sure that assets in your retirement accounts, such as a 401(k) or IRA, are allocated appropriately and that accounts are well diversified. Sitting down with your financial advisor on an annual basis is a great way to stay on track to meet your goals.

Another thing to consider is when you will start collecting Social Security benefits. The amount of your annual benefit increases for each month that you delay beyond your full retirement age. For anyone born after 1960, that’s age 67.

According to the Social Security Administration, you’ll gain 2/3 of 1% for each month you delay collecting your benefits. That comes out to a full 8% annually.

To make sure you’re prepared, follow these tips for prioritizing your retirement while in your 40s.  If you find you’re coming up short, you still have time to change your plans and saving habits.

Check Your Spending

As you enter your high earning years, you may feel easier about spending more of that hard-earned cash. Maybe you are tempted to buy a boat or a vacation home. Before you do, it’s important to consider your long-term financial plan.

Can you really afford the purchase, or will you need to take out a loan? Your 40s are not the best time to be accruing large debts that may still be with you during retirement. Even if you can pay off loans before you leave the workforce, will a monthly loan payment now impact your ability to save for the future?

Your 40s are an important time to live within your means by sticking to a budget.  Check your spending habits and identify areas where you may be straying off track. Then, make a plan to help you stay the course, prioritizing saving over buying or spending.

We have plenty of money saving tips to help you get started.

Start Thinking About Estate Planning

In your 20s or 30s, you may have devised a will to ensure that assets are transferred easily to a spouse or to establish guardianship for your children in the event of your untimely passing. In your 40s, it’s time to start thinking about protecting the wealth you’re building and ensure that your assets are distributed according to your wishes after your death.

Your estate may be assessed in probate expenses after your passing. This is money that may be unavailable to your heirs and used to cover costs, such as attorney and court fees.

One way to protect your assets is to establish a revocable trust. You may be able to avoid the probate process, save your heirs time, frustration, and money.

It’s also time to think about setting forth a living will and deciding who will have power of attorney to make decisions should you become incapacitated.

For more information on making end of life plans while in your 40s, you can read our tips on estate planning.

Take Advantage of Your 40s to Fuel Your Retirement

Making sure you remain on track with your savings goals is always important but takes on new meaning during your 40s as income grows and you get closer to your post-working years. The good news is, that any missteps made in your 20s and 30s may be corrected during this time by taking some of your extra income and putting it toward your retirement.

Visit FNBO’s financial journey page for more guidance or connect with a financial advisor.