For many people, hitting the big 4-0 can actually be quite freeing.
You’re in or approaching 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.
To be sure, the 40s are tough for some people, especially since the Great Recession.
Salaries may peak in that decade of life for some folks, 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.
Whatever your situation, it’s not too late to make the most of your financial future. But to do that, you should cross the following five tasks off your must-do list before your 40s are over.
1. Save to avoid a retirement emergency
Whether you’re riding high or barely making it, you should be saving for retirement.
Maybe you’re one of those unemployed or underemployed folks and have been for years. Or perhaps you’re part of the “sandwich generation,” someone who’s providing physical and financial support to both your kids and your parents.
Fail to plan now, though, and you might find yourself scrambling to fund your retirement in your 50s and 60s.
Ideally, you would have been saving for years and years. If not, enroll right now in any company retirement plan at work. Then save at least enough money in the account to get your employer’s entire matching contribution — that’s free money.
If there’s no match or even a company plan, start your own individual retirement account (IRA) with a company like Vanguard Group or Fidelity Investments. The nuts and bolts of the most common retirement accounts can be found in “Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple.”
2. Prioritize retirement over college
How lovely would it be to have both a healthy retirement fund and a 529 plan or other means of saving for your child’s college education?
If that’s not possible, you must prioritize your own retirement. The reality is that 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 affordable schools.
3. Prepare for the worst
If you have dependents, a spouse or anyone else who would struggle financially if you died, consider buying life insurance to cover their needs in the event of your death. You can cancel the policy once your dependents become financially independent.
Can’t afford life insurance? If your household income is $10,000 to $40,000 a year, you might be able to get free coverage through MassMutual’s LifeBridge program. It pays $50,000 toward your child’s educational expenses if you die before they finish school.
Another option you should at least consider is 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 decided to go without long-term care insurance. However, he stresses the importance of educating yourself on the ins and outs and considering your own situation very carefully before deciding.
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 You Need a Budget, aka YNAB. Once you find your money leaks, start plugging them. Every dollar you don’t let trickle pointlessly away is a dollar that can go toward your retirement plan.
Is it annoying to add “retirement funding” to your already long list of money musts? Probably. Is it necessary? Definitely.
Think of these savings as improvements to your quality of life: 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.
5. Think — and talk — about end of life
If you’re in your 40s, then your parents are likely approaching retirement or already stopped 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 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.
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.
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