For many people, hitting the big 4-0 can actually be quite freeing. You’re in your peak earning years, and your home is likely close to being paid off. The kids are out of that house — or nearly so — and you’re enjoying more of the other things life has to offer: hobbies, travel, restaurants that don’t serve French fries, maybe even a new career.
To be sure, the 40s are tough for some people, especially following the recession.
Although U.S. salaries tend to peak in this decade (between 39 and 48 according to Forbes), that doesn’t mean much if you’re unemployed or underemployed. Those who weren’t able to buy homes or who lost them during the recession may be seeing rising rent rather than equity increases.
Folks who had their kids later in life may be hitting the wall in terms of salary right when their children are getting the most expensive. (Raising a kid costs $245,340 from birth to age 18, according to the U.S. government).
Avoiding the “cliff retirement”
Whether you’re riding high or barely making it, however, you should be saving for retirement. (Can’t find the money in your budget? We’ll talk about that later.)
Maybe you’re one of those unemployed or underemployed folks and have been for years. If you don’t have much to spare, how can you save for retirement?
Or perhaps you’re part of the “sandwich generation,” someone who’s providing physical and financial support to your kids and your parents. Funny how often that leads to having more month than money.
But a less-than-ideal financial situation doesn’t mean you can ignore future needs. It’s human nature to want to believe that everything will work out somehow. Fail to plan, and you might find yourself scrambling to fund retirement in your 50s and 60s.
“It’s going to be really hard to catch up – if you even can,” personal finance expert Liz Weston said on Marketplace, by American Public Media. The result of failing to save, she says, is a “cliff retirement,” i.e., one in which your lifestyle falls off a cliff.
Ideally you would have been saving for years and years. If not, enroll right now in any company retirement plan.
And, importantly, enroll for an employer match, if one is available. It’s crazy: U.S. workers lose an estimated $24 billion in free money every year because they fail to contribute to their 401(k) plans.
What part of “free money” is so hard to understand? Don’t let this happen to you! If company matches exist, get yourself signed up for automatic increases so that you’ll ultimately receive the full match. Each time you get a raise, increase the percentage of your own paycheck that goes in there. If your employer offers pro investment advice, then by all means take advantage – that is, as long as it’s the right kind.
And if there’s no match, or even a company plan? Start your own 401k or Roth IRA with a company like Vanguard or Fidelity. The nuts and bolts of the most popular retirement accounts can be found at “Confused by IRAs and 401(k)s? Roth and Regular Accounts Made Simple.”
College and insurance: Niceties or necessities?
How lovely it would be to have both a healthy retirement fund and a 529 plan or some other mechanism to save for your children’s college educations. But if that’s not possible, you must prioritize retirement. The reality is, you can finance an education, but you can’t finance the last few decades of your life.
Be upfront with your kids so they can choose colleges accordingly. If you can offer little to no help, then it’s up to them to apply for scholarships and select schools that are affordable. For more tips, see “Go To College Without Borrowing A Dime.”
Another hot-button topic you should at least consider is whether you should invest in long-term care insurance. This is coverage designed to cover the cost of daily support — helping you with things like bathing, dressing and eating — in the event that you become incapable of doing these things independently. Some say you shouldn’t be without it; others are willing to roll the dice.
Stacy Johnson has researched this type of insurance and decided to go without it. However, he stresses the importance of educating yourself on the ins and outs and considering your own situation very carefully before deciding. For specifics, see his column, “Ask Stacy: Should I Have Long-Term-Care Insurance?”
Learn about life insurance as well if you have dependents, a spouse or anyone else who will struggle financially after you die. Need to know more? See “8 Ways To Save On Life Insurance” and the Money Talks News Solutions Center.
Can’t afford life insurance? If you earn less than $40,000 a year you might be able to get free coverage through MassMutual’s “LifeBridge” program, which pays $50,000 toward your children’s education if you die before they finish school. Follow that link to see if you qualify.