Creating a Financial Plan
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.
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.
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.
“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."
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.