3 Smart Money Moves in Your 40s | American Funds

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Coping With Life’s Complexities:
3 Smart Money Moves in Your 40s

As you navigate your 40s, you might find yourself juggling multiple financial obligations. Here are 3 tips to help you move toward a secure retirement.

Welcome to your 40s. There’s a good chance you might be trying to finance a child’s college tuition, pay a mortgage and save for retirement simultaneously.

You could also be joining the “sandwich generation,” with the dual financial responsibilities of providing for both your children and aging parents. One in seven middle-aged adults fit that bill, according to a report by the Pew Research Center.

If you haven't been focused on your finances before, now's the time. “This is a decade when you need to get very serious about financial planning,” says Roger Wohlner, a financial advisor and founder of The Chicago Financial Planner blog.

Here are three steps to take in your 40s:

1. Pay Off Your High-Interest Debt

The average American’s credit card debt peaks between the ages of 45 and 54 at around $9,000, according to ValuePenguin. And the Federal Reserve reports some 6.8 million Americans in their 40s still carry student loan debt, each with an average balance of $33,765.

High-interest debt is consuming money that could otherwise be growing in an IRA or 529 college savings plan, for instance. “It’s time to pay off your outstanding consumer debt,” says Erika Safran, founder of Safran Wealth Advisors.

  • Take a hard look at your spending and find items you can eliminate in order to free up cash.
  • Make a list of your debts and focus on paying down those with the highest interest rates first.
  • Consider using discretionary funds to save for a rainy day, then use them to pay down debt and fund your retirement, depending on your financial situation.

2. Get Strategic About Retirement Planning

Only 58% of people ages 45 to 54 believe they will have enough money to live comfortably throughout their retirement years, according to a recent survey by the Employee Benefit Research Institute. If you’re among those not feeling very confident about the future, be proactive.

  • Use a retirement calculator to see if your current savings plan is on track to meet your target. You can also see how making changes such as saving more or choosing different types of investments might improve your retirement outcome.
  • Be prepared to make tradeoffs. If you must choose between saving more for retirement or more for your child’s college tuition, experts often recommend prioritizing retirement. While your child can take out student loans, you can’t borrow to fund your retirement.

3. Invest Like a Grown-up

According to Wohlner, once you’re in your 40s it’s not enough to simply invest. You want a comprehensive investment plan that considers your goals, time horizon and risk tolerance.

  • Consider working with a financial advisor who can help you draft your plan and determine an appropriate asset allocation.
  • Rebalance periodically to make sure your allocation still aligns with the goals you’ve set. You'll want to adjust your investment mix as you grow older, or if you experience life-changing events.
  • Make sure the plan encompasses all of your investments, both your tax-advantaged retirement accounts and your taxable accounts. If you’re married, be sure to include those of your spouse as well.

“At this time in your life, it’s not enough to have a collection of investments," he stresses. “It’s about having an investment plan and sticking to it."


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