Retirement Planning Guide Based on Age: What to Do During your 40’s


retirement planning for 40 year-oldsOnce you stepped in your 40’s, you must switch your retirement planning into high gear. If you have started planning early on, you’re probably doing fine and all you need to do is reassess your status at this point. However, if you’re just beginning, you will need to catch up and double time on your preparations.

Whether you’re in the middle of retirement planning or just about to start, here’s a list of what you need to do during your 40s.

Step Up Your Money Management

Now is the time to take rigorous measures on your budget. Be more aggressive in finding ways to save and cut down on your expenses. Think about where your money goes such as car expenses, travel and leisure, utilities, subscriptions, and the like. How can you trim the costs of some of the items in your budget? For instance, you can share a vehicle with your spouse instead of driving two separate cars, limit the times you dine out in a month, or try repairing an appliance before opting to buy a new one.

High-ticket expenses such as a child’s college tuition fee are what hold forty-somethings back from saving for retirement. Though you may want to look after your children, consider that there’s a loan for college, but none for retirement. This is the reason why experts always encourage people in their 40s and 50s to focus on saving for retirement.

Be wise about your debt too. Cut the money you pay on interest by paying your dues on time. Settle high-interest debts first and afterwards, work on paying for those with lower interests. When you finish paying your debt, continue to set aside that particular amount but put it for long-term savings this time.

Maximize your 401(k) Contributions but Save outside your Employer’s Retirement Plan

Take advantage of your employer’s 401(k) plan and maximize your contributions, especially if your employers have a match program. However, retirement savings is not just about 401(k)s. You also need to save independently to grow your money even more.

Consider saving some of your money into an IRA or Roth IRA because of the tax benefits they offer. In fact, nearly half of adults between 45 and 54 are using this saving vehicle.

Balance your Asset Allocation

At this point, you probably have 20 years more before you retire. Good news, you still have time to save. Bad news, your investments only have 20 more years to grow. That’s why you need to allocate your assets accordingly to maximize your returns.

Financial experts say that if you have 80 percent of your money invested in stocks, you might want to pull back a little in your 40s. To know how much you should put in stocks, experts suggest subtracting your age from 110 and the difference will be the ideal percentage. For instance if your 45, that would be 65. This means, you can put 65 percent of your assets in stocks while the remaining 35 percent can be allocated in bonds and cash.

If you have benefits from previous employers, that can work to your advantage too. For instance, an old 401k can be rolled into an IRA, which you can invest in the way you see fit.

Consider rebalancing as well. According to Schwab Center for Financial Research, if you have a starting balance of $100,000 with 60 percent in stocks and 40 percent in bonds, you will have $2.9 million if you didn’t rebalance your portfolio. Meanwhile, if you shifted annually, this amount could grow to $3.5 million.

Rebalancing your portfolio can be a tricky thing and may result to tax bills, but it’s surely worth looking into. Otherwise, you can always redirect to new investments to find what mix works to your advantage and brings you closer to your goals.

Evaluate your Goals and Progress Regularly

Especially if you’re catching up. Reassess your goals every two years, because you need to keep a close eye on your financial growth. See what factors affect the changes and be willing to make adjustments along the way if you are getting behind on the growth that you’re supposed to have. To make sure that returns and earnings are aligned with that you want to attain.

Invest in Yourself

One of the tricks of the trade is to never grow stagnant. That’s why it pays to refresh your knowledge and improve your craft. You can do this by taking seminars, attending conventions, learning something new, and widening your skill sets. You can even consider going back to school.

The rewards of learning again are more than monetary. Of course, expanding your knowledge brings newer ways to earn and save, but it can also give a renewed sense of purpose and a wider perspective of the world.

In the next installment of this series, we will discuss the essentials of retirement planning during your 50’s.

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