As you reach your 40s, career success and a rising income mean growing wealth. But with more responsibilities, such as children reaching adulthood and retirement looming, financial stability is key.
Here are six steps to help you stay on top of finances in this stage of life.
1. Boost your retirement savings
Retirement is still a few decades away, but it’s getting closer. Now’s the time to check your budget and see if there are ways to put more money toward retirement.
Make sure you’re at least hitting your employer matching bonus through your workplace plan (if available). After that, consider opening an Individual Retirement Account or IRA. These offer more investment options but have lower contribution limits. You can choose from the following:
- Traditional IRA: Contributions are pretax, but retirement withdrawals are taxed at your ordinary rate.
- Roth IRA: Contributions aren’t tax-deductible, but qualified retirement withdrawals are tax-free.
Once you max these out, go back to contributing to your employer retirement plan to save more money pretax.
2. Get a life insurance policy
A life insurance policy can help you stay on track with your finances, but when should you get life insurance? The good news is that it’s never too late.
A life insurance policy’s death benefit can protect your family. And if you pass away during the policy term, loved ones can receive a substantial, tax-free death benefit to replace your income and pay off debts.
Furthermore, if you get a permanent life insurance policy, your cash value growth component can help you supplement your saving and investing.
3. Refinance and pay off your debts
Refinancing and paying off debts can make a lot of room in your budget by cutting your interest expenses and boosting your cash flows.
Start by refinancing the big loans, like your mortgage and car loans. Since these may represent some of your largest expenses, refinancing these can free significant amounts of your income for saving and investing.
After that, focus on repaying high-interest debts, like credit cards. There are two approaches to doing this:
- Debt avalanche: Pay off debts in order of highest to the lowest interest rate. Once you pay off the highest-interest debt, move to the next high. This saves you the most on interest, but you build momentum more slowly.
- Debt snowball: Pay off debts in order of smallest to largest principal balance. Once you pay off the smallest debt, move to the next smallest. This costs you more in interest but helps build momentum through quick wins early on.
4. Check on your emergency fund
Emergency funds are savings for unexpected events, like sudden job loss or a major car accident.
You may have saved up the recommended three to six months earlier. However, now that you have more responsibilities, your living expenses may have crept up, so you might want to add more.
Consider setting aside more than six months if you’re the sole earner. This can provide an extra financial cushion if you lose your job.
Also, consider moving this fund to a high-yield savings account. This will help you earn several times more interest on your balance, helping your emergency fund keep up with inflation.
5. Reevaluate your investments
In general, younger savers and investors tend to pick more aggressive investments since they won’t need their money for many decades.
That can change as you progress through your 40s. Retirement’s close, so you may want to consider stabler, more conservative investments in your retirement plan.
This can apply to non-retirement investments, like taxable brokerage accounts. You don’t have to wait until retirement to use funds in that account, so you can use them for other goals — such as going on vacation, funding your kids’ college, or even retiring early.
Ultimately, working with a financial planner can help you pick suitable investments for your goals.
6. Look over your estate plan
Your estate plan dictates your end-of-life wishes, from asset distribution to end-of-life medical care.
This plan ensures that all your wishes are met, helping your family avoid conflict and save time if anything happens to you.
Key pieces of an estate plan include:
- Will: This states how you want assets to be distributed.
- Advanced Health Care Directives: These explain your wishes for your end-of-life medical care.
- Durable Power of Attorney: If you become incapacitated, this chooses someone to handle your financial decisions. For example, they could pay your mortgage bill and log into your bank accounts.
- Medical Power of Attorney: This chooses someone to make medical decisions for you if you become incapacitated. This and the Durable Power of Attorney should be given to people you deeply trust, such as your partner or other family members.
- Life insurance policy: As mentioned earlier, a life insurance policy can protect your family and help you pass down more wealth.
Handle your finances with ease in your 40s
A new decade brings new financial obstacles and goals.
Taking the steps above will allow you to enjoy this decade of your life and worry less about your money.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
Life – 68000 Series – In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100- A68400. In New York, NY68100-NY68400. Term/Whole Life – B60000 Series – In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Group Whole Life – Q60000 Series – In Arkansas, Policy Q60100CAR. In Delaware, Policy Q60200M. In Idaho Policy Q60100CID. In Oklahoma, Policy Q60100COK. In Oregon, Policy Q60100COR. In Texas, Policy Q60100CTX. Group Term Life Q60000 Series – In Delaware, Policies Q60200C. In Arkansas, Idaho, Oklahoma, Oregon, and Texas, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C.
Aflac insurance coverage is underwritten by Aflac. In New York, coverage is underwritten by Aflac New York.
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