As people turn 40, the reality of their financial situation really begins to hit home if it hasn’t already. Most likely people have settled into a career or occupation and the elements of their personal lives have reached a level of stability. As this period of stability and likely routine settles in, many individuals can no longer ignore their financial situation.
Here are some of the financial realities facing today’s 40s:
You are likely nearing your peak earnings years. This reality is self-explanatory. All the work you have put into your education or employable skill set should be producing the income you hoped. You will have likely reached a certain rung in the ladder of success if you are like most people.
You are nearing your peak spending years. Yes, studies show that at age 46 we have reached the point when we have the most stuff. I know you will likely not agree that you will see a time when you don’t buy more tech, sports equipment, toys for the kids or the latest storage device but I can tell you it will happen.
Having a clear investment strategy is critical. At age 40 you are a mature adult. How and where you are investing needs to follow a clear strategy. You can still take advantage of time and compounding to reach your financial goals.
Having the proper insurance protections in place is a foundational issue. There are no excuses any longer. You must have life, health, disability and general insurance coverages in place that you update annually. You need to protect your lifestyle and future.
You begin to realize you will need future sources of guaranteed lifetime income. The options for such income are diminishing as most employers don’t offer pensions, interest rates, although increasing, are still historically low and lastly, corporate bond yields remain at low levels.
Longevity risk is real and increasing. You are realizing that you will likely live to age 90 or longer and need to plan to have cash to pay your living expenses. Where will it come from?
Future tax rates will likely increase, particularly for higher income households. Our governmental disfunction in Washington and out-of-control spending likely mean we will see higher income tax rates in the years ahead. How will you plan for this?
Saving for healthcare costs in retirement is likely a major issue. Annual surveys indicate that you will likely need over $300,000 saved to cover the household cost of medical care in retirement. Are you on track to save this money? Are you planning on buying insurance coverage to offset the likely future financial burden?
Inflation is impacting the ability to save. How are you considering inflation into your plans and cash budget?
Protecting “lifetime spending” peace of mind in retirement should be a planning goal. At the end of the day it is not what you have accumulated in assets for when you stop working full-time. It is what income do you have coming in. Are you planning to protect your lifestyle in your latter years?
Questions, questions and more questions. The related answers differ person to person. Financial realities can be hard to face by yourself. To properly address all the areas you need to consider, I believe it is really important to have a holistic financial plan in place in your 40s to help guide you through your maximum earning years and to prepare for the time when full time work stops. It’s time to have a conversation with a financial professional. A little coaching at this time in your life can pay substantial dividends. Not to mention the peace of mind it will bring.
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