Wealth Mapping Your 40s | The Critical Mid-Years

Adam Herod
Dec 28, 2018
4 min read

Here are the moves that will help you stay financially sound in your 40s. #thewealthmap #money #40s

Your 30s have given you one solid decade of work under your belt. Two more lie on the horizon. Let's see what you can do in your 40s to put yourself in a great position for your final decade before retirement.

Retirement Savings Goal

As you enter your highest peak earnings, this is a great time to make sure you are saving 15% or more of your overall salary.

Your goal here is to keep your percentage high, while raising your income level.

As an example, let's say you're earning $65,000 at age 40 and reach $75,000 by age 45 - you'll take your contributions from $9,750 a year to $11,250.

Bump up your contributions to 20% at $75,000 and you'll be stashing $15,000 per year.

Need some motivation?

With solid 7% returns and a company match, you could put away $650 a month, or $7,800 a year, starting in your 40s and get to $1 million by age 67.

If you haven't asked for a raise in a while, see what you can get by outlining some key reasons you deserve a raise and meeting with your director.

Better yet, do some job hunting and see if you can leverage your professional skills to negotiate a higher salary with the competition.

You can keep one foot one dry land while you poke your toes out into the job market.

If you don't think you'll be able to negotiate higher payer or move jobs, set a plan to make catch up contributions once you hit your 50s. Start stashing some money away, so that once you reach age 50 you can add $6,000 extra per year to your accounts.

Expenses

Remember when you were in your 20s and 30s and you looked forward to getting rid of all your debts and living the life of financial freedom?

Ha... ha...

Someone once told me that my expenses would not necessarily die away, but instead they would morph.

Anyone with children understands.

While you're paying for vacations, weekend outings, sports teams and events, and all the expenses that come with raising our children, it's important to know your limits.

Those in their 40s now may have set a rampant pace when it comes to raising their children - participating in multiple groups and activities per quarter and traveling to the edge of their means - however, it's important to work at your limits and make adult decisions when they arise.

A study on parenting analyzed the levels that Generation X had catered to their children's desires, and suggested we were in the greatest social experiment of our time.

Prior generations delineated adult decisions and children's decisions to an extreme. In response, Generation X swung the pendulum the other direction, with the article retelling a story of a family that would not buy a house in a fast moving market until their six year old saw the whole home.

Their child did not approve of the home, and they lost out on the home of their dreams.

Here's the lesson: put yourself and your retirement first.

The main theory here is if you do not take care of your retirement, and instead fund your children's education, you cannot turn around and expect your children to take care of you.

You have fewer earning years ahead of you than your children, so cover yourself off, first, and if need be they can take out student loans and you can help them pay them back should you have any extra funds.

Should you have any extra funds set aside, or you followed the advice from "Wealth Mapping Your 30s | The Early Middle Years," it would be a great gift to pay for each college application - opening the door to the future for your child that has quickly become a young adult.

Estate Planning

At this age, it's likely your initial family with Mom and Dad, as well as your immediate family with your own children, are in a prime window for some serious discussion on estate planning and insurance coverage.

It's not an exciting discussion, but a simple, direct question to your parents can open the doors.

"Do you guys have a will and estate plan?"

Then go from there.

Also, you should make sure you have your family more than covered with your own will, living will and power of attorney.

This is a great time to investigate life insurance, if you have not already.

You do not ever want to leave your family without the means to live comfortably, and plans will cost less the healthier and earlier you buy into them as compared to later.

A lawyer could put together your estate documents for up to $1,000 or more, or you can complete these documents on your own using online services for around $300.

Extra cash lying around?

These are the years you were looking forward to - especially when it comes to being debt free. So if you have any extra cash lying around it's prudent to make sure you're putting it to work!

Saving to invest is the key here, since you could be looking at a longer period of post-retirement bliss than the generation before you. Leaving your money in an online savings bank may earn you 2% annually; however, opening a brokerage account or Roth IRA can make even more sense here.

Since you've worked a few decades on behalf of your money, it's more than time you put your extra earnings to work for you.

Need inspiration?

$200 extra dollars a month in a vehicle that earns 7% can turn into over $100,000 in just 20 years.

Want to leave a gift to your child when they reach a specific age of maturity? Take a look at an UGMA (Uniform Gift to Minors Act) account. This is an account that will allow couples to invest up to $26,000 a year and not incur a gift tax upon your child's maturity.

Any one can open an UGMA, so this makes a great legacy gift for older parents and grandparents.

For more follow @thewealthmap on Instagram and Facebook.

You can message Adam at wealthmapblog@gmail.com.

*Graphs via www.bankrate.com