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 since the Great Recession. U.S. salaries tend to peak in that decade of life (between ages 39 and 48 according to LearnVest), but 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 rent hikes rather than equity increases.
Folks who had their children later than most may be hitting that salary ceiling right when the cost of having kids is getting expensive. (Raising a child costs $233,610 from birth to age 18, according to the U.S. government.)
Especially if you have kids, here are five things you should cross off your must-do list to make the most of your financial future.
1. Avoid a “cliff retirement”
Whether you’re riding high or barely making it, 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 both your kids and your parents. Funny how often that leads to having more month than money.
But if you fail to plan now, and you might find yourself scrambling to fund your 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,” that is, 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 at work. 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.
Don’t let this happen to you! If your employer matches your contributions, 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.
And if there’s no match, or even a company plan? Start your own 401(k) or Roth IRA with a company like Vanguard or Fidelity. The nuts and bolts of the most popular retirement accounts can be found in “Confused by IRAs and 401(k)s? Roth and Regular Accounts Made Simple.”
2. Prioritize retirement over college
How lovely would it be to have both a healthy retirement fund and a 529 plan or some other means of saving for your children’s college educations? But if that’s not possible, you must prioritize your own 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.”
3. Prepare for the worst
If you have dependents, a spouse, young children or anyone else who will struggle financially if you died, consider buying life insurance to cover their needs. For most people, the best and most affordable choice is a term life policy. You can pay the premiums until your dependents are financially independent, then cancel the policy.
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.
Another option 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.
Money Talks News founder 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 of considering your own situation very carefully before deciding. For specifics, see his column, “Ask Stacy: Should I Have Long-Term-Care Insurance?”
4. Invest, even if you think you can’t
Finding money to put away is a challenge, but it’s almost always doable. Not necessarily fun, but possible.
Start by tracking your spending, either on paper or with an online tool like MoneyTalksNews’ partner PowerWallet or Mint.com. Once you find money leaks, start plugging them. Every dollar you don’t let trickle pointlessly away is a dollar that can go toward your retirement plan.
Next, create a workable budget. That means funding your needs – food, shelter, utilities, debt service – and a certain number of wants. Any “extra” money you’ve found can help cover your future in the short term — by establishing an emergency fund — and in the long run, in the form of a retirement fund.
Is it annoying to add “retirement funding” to your already long list of money musts? Probably. Is it necessary for you to do so? Definitely.
Think of these savings as improvements to your quality of life: Having an emergency fund will make it easier to deal with any surprises life throws your way. Putting money away for retirement helps eliminate the insomnia-inducing worries that you won’t have enough or will become a burden on your kids in later years.
Being careful with your money does not mean you can’t enjoy life. You just need to get creative with your fun as well as your funds.
More good news: A minimalist lifestyle means that indulgences seem way more awesome. For example, if you’ve cut way back on sweets, bringing home a quart of ice cream will seem like a tremendous luxury.
5. Think — and talk — about end of life
If you’re in your 40s, then your parents are likely approaching retirement age or already finished working. That means it’s time to have what may be the most uncomfortable chat you’ll ever have with Mom and Dad.
Yes, it’s worse than the facts-of-life talk. This time you’re discussing things like money, health care directives, power of attorney, wills and where your parents will live out their final years.
Awkward! They (or you) might want to put this talk off indefinitely. Don’t. Trying to figure out what your parents would want after they become ill or are injured is not the way to go about this. You need to know if they have plans in place.
This might also be the time when you discover they’re spending like drunken sailors because they plan to move in with you once they’re broke. That’s an entirely different talk, but better to have it now than 10 years from now when they show up on your doorstep.
Speaking of wills: If you haven’t made your own, do it now. Your loved ones will be traumatized by your death. Don’t make it worse by leaving zero instructions about who should get what and who should be in charge of distributing your worldly goods.
Only 26 states recognize “holographic” wills, i.e., those you write yourself. Having a lawyer create a will for you could cost from a few hundred to a few thousand dollars, depending on the complexity. For a cheaper alternative, check out services like Nolo, LegalZoom and Rocket Lawyer, where you’ll pay anywhere from $35 to $80 or so.
People with minor children must designate legal guardians for those kids in their wills. So figure out who you’d want those people to be and to ask them if they’d be willing to do it. Never just assume that your sister can take your three kids.
For more details, read: “Do It Now: 8 Essential Documents for Estate Planning.”
Finally: Don’t let your fear of the future keep you from planning for it, even if you haven’t saved a dime thus far. As the saying goes, the best time to have planted a tree is 10 years ago. The second-best time is today.
If you didn’t lay the financial groundwork in your 20s and 30s, resolve today to start making smarter decisions. Future You will be very, very glad that Current You put forth the effort.
What are you doing to plan for your future? Share with us in comments below or on our Facebook page.