Healthy Retirement 101: What to Do in Your 40s
Saving for retirement can be a balancing act, particularly if you put it off until a time when you’re earning a bit more money. Often, the more you earn, the greater your financial responsibilities become, so by the time you reach your 40s, your income might be stretching in several different directions. But this doesn’t have to doom you to a frugal retirement.
Hit the Accelerator
Consider stepping up your contributions toward savings. It’s not too late to start saving for retirement if you haven’t done so already. You may have to make some tough choices, however, and you’ll probably have to save more of your income than you would have in your 30s. Instead of writing out big checks for your child’s college tuition, consider student loans and applying for scholarships so you can put those lump sums of money elsewhere. You might even consider sending him to an in-state school for a tuition break. Your child has options for education, whereas no one is going to loan you money to fund your retirement.
Check the Size of Your Nest Egg
It’s worth it to make an honest assessment of your projected expenses and preferred retirement lifestyle. You can use this to determine exactly how much money you must save each year. CBS MoneyWatch says that you should ideally have saved four to six times your annual pay by the time you turn 40, at least if you want to live high on the hog. “At the very least, you should have two times your earnings saved,” says John Bartuccio, a certified financial planner with Lincoln Investment Planning in Wyncote, Pennsylvania. If you’ve already been saving for the past two decades, diverting a steady 10 percent of your annual income toward savings might achieve your goals. If you haven’t yet begun saving, you may have to up the amount to at least 15 percent. If you think you might conceivably work until age 70, you’ll collect more in Social Security, and this might balance somewhat smaller contributions made each year in your 40s.
Get Rid of Debt
Think credit cards and personal lines of credit, as opposed to a mortgage, when it comes to eliminating debt that accumulates interest — mortgage interest is tax deductible, so it’s not the same kind of cash drain. If you can pay off these accounts, you can put the money you would normally spend on interest toward retirement savings instead. “Above all, live within your means,” says Bartuccio. “Your 40s are probably your peak earning years, so they should also be your peak saving years. Most people can achieve 15 percent in annual savings if they don’t spend money that they don’t absolutely have to.”
Expand Your IRA Options
Look beyond your employment benefits to fund your retirement. If you’ve saved money in a 401k with your company matching a portion of your contributions, you’re not starting at zero. Think about establishing an individual retirement account now as well. Roth IRAs are particularly attractive because you don’t have to pay taxes on their growth, provided you don’t withdraw the money until at least age 59 1/2 and the IRA is at least five years old.
Diversify Your Investments
Safer investments allow you to branch out for optimum growth. You have 25 years or so until retirement, so you’re still in a position to sustain a bit of risk. Putting money in bonds is somewhat on the conservative side, whereas investing in stocks sometimes requires nerves of steel. But you can minimize the risk of stocks if you play it smart, says John Risley, President of L.O. Thomas and Company, an investment firm in Linwood, New Jersey. “Look at aggressive growth stocks when you’re at this age — small cap, medium cap and large cap,” Risley says. “I warn my clients to stay away from restaurants, retail and especially airlines — they’re very tricky. Invest in products that people use every day because people are going to continue needing them in the future. Think (pharmaceuticals) and other areas of the medical industry, food and energy. I love health care. These things don’t go out of vogue.”
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