By the Age of 40 – Make Retirement a Priority

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In what seems like a blink of an eye, 20 turns into 30, and then 40 lurks around the corner. It’s at that time that people begin to take things in life a little more seriously, including retirement. Although you still have two decades to put money away, the time to start taking action is now. Make retirement a priority.

By the Age of 40 - Make Retirement a Priority
By the Age of 40 – Make Retirement a Priority

For a period of time during adulthood, money goes toward paying bills, buying a house, purchasing a car, making home repairs, and so on. The one place it’s not going is into a savings account. Especially for parents preparing to send their kids to college, which usually happens around the age of 40, there never seems to be extra money to put aside. Then if they have a job that doesn’t pay well, a comfortable retirement begins to look less and less likely.

From age 40 to 50, most people earn their highest salary ever. However, instead of focusing on retirement, the majority of them spend on other things. Instead, they should switch their attention to putting money aside, so they can retire with financial stability.

One option is to pay down a mortgage or pay it off in its entirety. Shortly after having children, they should also start putting money for their college education. At the same time, they should sock away as much money as possible. Even a small amount is better than none at all. By waiting to do these things, they’ll likely need to reduce the amount they contribute to retirement.

Getting and Staying on Track

If you want to stay on track in meeting your retirement goals, you’ll need to carefully monitor your progress. This is especially true considering all the financial demands during the 40s. One way to do this is by utilizing an accurate and detailed retirement calculator designed specifically for this purpose.

If you discover after reviewing your situation that your retirement savings account isn’t close to where it needs to be, you’ll want to formulate a plan to help you catch up. Even if you’ve been able to build a nice “eggs nest,” it’s still critical that you continue monitoring. If after 20 years or more you’re satisfied with your retirement savings, you can go on autopilot.

Some people are fortunate enough to have funded their plans extremely well. As a result, there’s no need for them to continue making contributions. Take a 45-year-old individual who wants to retire with $3 million at the age of 65 as an example. If that person already put $650,000 aside and can earn 8 percent annually on average, the goal is reachable. In that case, that person can stop contributing to the plan if wanted.

Catching Up

The fact is that most people haven’t saved $650,000 by the age of 45. If you’re one of them, you need to create a viable plan. Especially if you do not see an increase in income in the same way as when you were 20 or 30, you’ll need to find ways to modify your spending in an effort to catch up.

A perfect example, when sending your son or daughter off to college, you could take the opportunity to downsize your home. As you know, your mortgage is the most significant expense you have. That alone can have a substantial impact on your budget – in a good way. You can set some of the saved money aside for retirement.

Another example, if you have three car payments, but there are only two drivers left in the house, decide which one to eliminate. Again, the money you would normally spend on car payments can go directly into a retirement savings account. Something else to think about is your lifestyle. You want to live comfortably, just not lavishly. That will go a long way in building a better retirement portfolio.

What it comes down to is looking at all the different ways you can spend less now so that you can retire with a stronger portfolio.

 

Asset Allocation

More than likely, your asset allocation becomes more conservative by the time you reach the age of 40. If you hire an expert to establish an allocation on your behalf but choose not to use it, you should still use the model for your retirement portfolio. Using a target date allocation, your portfolio might consist of 85 percent stocks and 15 percent bonds.

There’s an excellent chance that from age 20 to 30, nothing major changed since you still have many years left before retiring. However, you want to use this time to your advantage by investing more aggressively. Considering that you’ve seen declines in the financial market as an adult, this is especially important. In other words, you need to use the next 20 years to catch up. Ultimately, the closer you get to retirement age, the more your asset allocation should change.

For you to manage your asset allocation across more than one account, it’s essential to view your portfolio as a single bucket of investments. That way, you can balance them better. There are several free tools available that can help with this. In effect, you can use these tools to become more educated as to how to make your investments work as a team.

Without question, the 40s are the most crucial decade when it comes to planning for retirement. During this era, you can either catch up for the less aggressive savings from the past, or you can modify the way you save to help you achieve your retirement goal. Regardless, as you reach age 40, it’s important to know that you still have ample time to prepare for the golden years. Staying on track will allow you to have a financially secure and comfortable retirement.

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11 Responses to By the Age of 40 – Make Retirement a Priority

  1. Great article and yes, one should definitely by age 40, have set up a retirement savings program. That means, you better have a good budget in place and stick by it, even if it means giving up some pleasures to do this. I have read on some sites where people go on frugal budgets and eliminate all debt but they don’t mention how they “saved” the big expense of a budget (housing) by sharing living arrangements with family.
    What I hope some of the commenters bring to this discussion is how to put aside enough money and still pay all your bills including housing, without having to move across the country to a cheaper residence, especially if you are making a good salary in present geographic area. I would like to hear what others are doing to put money away without causing financial strain on the budget. And yes I already assume getting a part-time second job is on the table.
    The reason I am saying this has to do with the attitude of employers towards employees, especially top earners. One can not overextend themselves at this point, you should be not adding new debt of any kind unless there’s a surplus in income, above and beyond putting money aside for retirement, which at age 40 has to be a necessary cost.

  2. Hi MariaRose – I think – unfortunately – a lot of the retirement advice is aimed at higher income people, those earning over $100,000 per year. At that income level, you can save for retirement and still live a relatively comfortable life. The problem is for the majority who earn a lot less. That’s where saving money becomes sacrificial. The only way to do it is by cutting back on basic living expenses, like housing. It’s not easy to do, though it may be entirely necessary.

    The other problem is debt. It’s too common for people to borrow for college, cars, and transitional expenses, like moving out on your own or buying a first house. While that may seem like the right thing to do at the time, it puts you on the debt treadmill that could easily become permanent. Once that takes root, it becomes close to impossible to save money on an average income.

    I’ve heard of some potentially dangerous strategies, like doing without health insurance and not going to the doctor. Or others like not having any life insurance. Unfortunately, when financial resources are limited, tough choices become necessary. But this explains why more people aren’t better prepared for retirement.

  3. I agree with you. Learning how to deal with your financial health should not be such a hard thing to do but no one is really taught how to handle money without using debt. But we definitely need a different ratio for expenses as the formula for housing costs is way off because like you said it is assuming a certain level of income.
    But regular income level earners can save if they have access to setting up 401plan contribution from pre-tax dollars. Then they can use net income to plan their budget. I would have had a larger amount saved for my retirement if I could have continued contributing even when I switched jobs. Theoretically all employers can do this just like they accept directly paying employees via direct deposit. I don’t know if the places that offer 401k work directly like this. It’s just an idea that for me is too late but I suggest that people look into this option. Perhaps Tim can offer other ideas.

  4. As far as a company 401K is concerned I can’t offer anything on that. I don’t really know how they work. I never had one.
    I’d assume you can roll it over into your next job or take it with you? Afterall it is yours, isn’t it? If you take it with you, why would you stop contributing? I assume you changed jobs for a better one? That paid more?

    I have always had a self-directed IRA. With that option, you can put just about anything in it. Precious metals, real estate, etc, etc.

    There was another statement that you made that concerns me. This is where I get confused as to how people think when you said, how do you handle bills and housing without moving to a cheaper area. Especially if you have a good salary.
    Although you may make a good salary, you live in a region that has soaring housing prices or one you can’t afford then I ask, what difference does it make what your salary is if you can’t afford to live there?
    You could make a million a year but if you live in an area that costs you 1.5 million a year then what are you gaining by that high salary? It’s useless.

    In a lot of cases,.people need to realistically look at what they really make. Not there salary on paper but what they bring home in actual cash. That is your true salary.
    If more people actually did that in get out of denial about what they really make it would help so much more than try to keep up some kind of false appearance or lifestyle for the sake of looks.

    In a lot of cases, yes moving to a cheap area should be on the table. It’s a matter of survival.
    I would gladly move to a cheap area and make 60,000 with no bills then live in an expensive area making 100,000 with bills and high unrealistic housing costs.

    This is where Kevin’s advice really comes into play. I live in one of the poorest sections of one of the cheapest cities in the country. My money goes 7 times further here than anywhere else. If it changed I’ll move. This is where being flexible and having your own business is a key now to surviving in this age and false economy. On one other note, living in a poor area is not dangerous. It is a false narrative. It’s funny but people here who would commit crimes or rob people don’t do it here. They assume nobody here has anything. They go to the expensive areas and do it. The best areas of the city have the highest crime rates with robbery.
    Also people here are not afraid. So if you approach someone with ill intent, people here will confront you right back. Everybody here knows this and nobody here bothers each other. They don’t call the police. They handle it themselves.

    I’m not saying this is you. It probably isn’t what you want to hear. People complain about not having money to save but most of the time they are not willing to do what it takes to survive and thrive. They wait around complaining and hoping someone will fix it for them.

    Your right Maria, it is not hard. It’s common sense and doing some basic math and being realistic and adjusting your life to fit your salary.

    The single most best advice I ever got from my father is if you can’t write a check or pay cash you cannot afford it, period!
    If I made 20,000 a year I wouldn’t get married or have kids, have a car and I would be sleeping on someones couch until I figured out how to make more.

  5. Tim, what it comes down to is settling into a comfortable, predictable lifestyle is rapidly becoming a fantasy for the middle class. We need to constantly substitute lower cost items (chicken instead of steak, ALDI instead of the local supermarket, etc.), drive used cars, move to cheaper housing or regions, and always be looking for ways to increase income. I’m up for all that.

    But I also in agreement with MariaRose on moving to a new area. It doesn’t always work. For example, years ago I knew a CPA from NJ who moved to a very small town in Maine to cut living expenses (with a family in tow). I don’t know, but he might have thought that being a CPA he’d easily be able to make a living “anywhere” – which is typically what credentialed people believe. Well, no surprise, there was no work of any kind in the small town. Another pair of attorneys were looking to move to Bozeman, Montana. Again, high credentials = high paying job anywhere, right? Nope. At the last minute they decided not to go when closer investigation revealed their incomes would drop by about 2/3s.

    The reality is probably most people are tied to high cost metro areas due to work. Me and my family were only able to move to NH because my business is completely portable and not at all affected by geography (but still my wife and kids found work quickly, and I attribute it all working out to God’s hand on our lives). But not everyone can do that. Many, maybe most, are dependent on metropolitan careers that either pay FAR less than what they’re getting now, or there’s no demand for the occupation at all in the lower cost area. Think about corporate jobs. There’s plenty of them in the large metros, but they don’t exist in small communities. A person making $60k in a corporate job may be forced to become a handyman at $25,000 a year in a small town, if he can even make that much (and he won’t for the first couple of years).

    One other thing, not everyone is willing to give up everything they know to make a move. In my own experience, if you’ve done it once you can do it again. But a lot of people never leave the area they grow up in and are terrified at the prospect of uprooting. I wonder if the willingness to blaze new paths isn’t a genetic thing, and not everyone has that inclination.

    But then I’ll die with more questions than I’ve had my entire life. The more I learn, the more I realize what I don’t know. I make strategy suggestions, knowing most won’t ever follow them, but in an attempt to get people to think about what’s possible. Robert Ringer once wrote that courage is the key to the prison door, but not everyone has it or is willing to live with the consequences of stepping into the unknown. As the saying goes, “there’s the devil you know vs. the devil you don’t know”. If given a choice, most will stay with the devil they know.

  6. I hear you. That’s why it is probably essential to have a portable career.
    I do understand. My thought is always, what good is a high priced career when you can’t make it work where you are.
    Sometimes you might be better off being a handyman with no bills.
    I don’t know. I felt stuck when I had a big time law enforcement career. Once I left and started my own business I have never felt as free as now.
    There’s a lot to be said for that. Maybe those high priced careers are the trap.
    I know most people would rather struggle there whole lives where there at then do something about it.
    There’s always an excuse or a reason.
    I keep quoting my father but one of his other gems was that he hated excuses. No matter the reason.
    He also kept saying “command your own life” don’t let it command you.
    I see these veterans who loose legs and go on to be para Olympic champions while others go lay in the gutter with a sign asking for change.
    It’s up to you. All of it.
    I understand what you mean and agree with some.
    It’s just not in my makeup to be a victim or blame anything on excuses or the government or the economy.
    I’d move across the world if I had to.

  7. They don’t call high paying careers “golden handcuffs” for nothing. It really is true, you may gain material wealth, but you often give up your soul in the process. But I don’t focus on people with high powered careers/incomes, because they have more options from the start. They can parlay that income into income generating assets, then shake off the golden handcuffs with a career change, or they can spend to the max and be trapped in the matrix.

    But my focus is mainly on those with modest incomes for whom difficult choices have to be made. I’m with you, I’d rather make less and have more control over my life. I’m much happier working for myself than I ever was in a job, and that was true even when I was making a lot less money. But portability is another reason I emphasize having a side business. Even if your main job isn’t portable, a portable side business can give you options you won’t have if you’re 100% dependent on a job. For example, you may be able to take your side business to a cheaper location and use it to supplement the lower paying job there. I think it’s the best strategy for the average worker.

    But I do want to circle back to what you said earlier about moving into a poor neighborhood and finding it not nearly as dangerous as people think. I’ve never lived in a poor neighborhood, but I’ve lived in several lower middle class neighborhoods, and found them to be better than people in more expensive neighborhoods generally assume them to be. Even now, we’re living in a 50 unit condo with average prices at $200k+, but we have apartment complexes on the adjacent properties east and west. Both are no frills apartments, housing mostly the working poor or slightly above. The one to the east is Section 8. I find no problem living here, but I know a lot of people would turn their noses up at it. It all depends on what you’re used to or can get used to. And as you said, flexibility is an important attribute. I’d say one of the most important from a survival standpoint.

    (On an aside, the rents in those apartments are in the $1200 – $1400 range, which isn’t cheap. But it is relatively affordable in NH, which has ridiculously high housing costs for more reasons than I can cover here.)

  8. Rents are not all that much lower here. One of the things I like here is that people actually live in the neighborhood. There are kids all over. Playing football or basketball in the street. Riding bikes, etc, etc.
    When I lived in an upscale neighborhood it was a ghost town in the summer.
    Everybody would take off to their country homes or take long trips overseas for weeks at a time. Nobody knew each other.
    Their house was a status symbol. I always had to work in the summer so we would get a week or so for vacation.
    I actually find more of a community here.

    Anyway, I realize everybody is different. What I would do others won’t. I wish I had the magic formula Maria but I don’t.
    There are no short cuts. Just building on top of building on top of a good foundation. That being no debt. That’s the foundation. Once you have that you can build on top of that. Line by line or day by day. It’s a lifetime of that.

  9. Good advice Tim. I’ve found the same here with the neighborhood activity. Around here you see and hear kids all over. It’s reassuring. In the prodigy neighborhoods, same thing – ghost towns. The kids are too busy playing on their computers and smart phones and building up college resumes with extracurricular activities. They’re not allowed to be kids, despite being held up as the preferred way to be kids in the 21st Century. Not the world I grew up in, that’s for sure.

  10. Hey guys, when one is just setting out on a career path unhindered by a family, the world is your oyster, but when you have a responsibility and by age 40, you will need to definitely plan past pleasure of the moment. I just read an article which mentioned a few ways to seriously save for retirement. The first thing mentioned was to set up a financial budget after you literally write down in some form (now with technology, you sign up for a site that you allow access to your accounts and they do it if you don’t mind sharing that information). I prefer using a notepad and pen and I check the balances and activities of every account at least twice a month. Banking, I do weekly on a Monday afternoon and a Saturday, since they don’t post everything the same day the electronic transfer of funds are moving. Anything considered a bank holiday delays recording of transactions also.
    Back to housing choices, with a family, you want to have a fairly safe location that is also affordable and then you have to choose how far you are willing to commute to work. If you drive and can afford a car cost in your budget, you can live in an area that may take you 40-60 minutes to drive to work ( without backups in the traffic) to get a lower housing cost but you are merely exchanging housing cost savings into car maintenance. Or if you can deal with it, use public transportation and use that time to prepare for the workday.
    As for the comment about 401K programs, it is only recently that even blue-collar workers can take advantage of these programs and they now can follow you from job to job. In previous years, 401K was only offered certain companies and to a certain level position. If you left the company, the 401K account was yours but there wasn’t the access to direct deposit pre-tax funds as we do now. Remember electronic transfers like direct deposit only came about after computer technology was mainstreamed to everyone. So today, if an employee does their payroll information paperwork right, they can delegate funds to IRA’s and 401K’s, pre-tax dollars. Especially since everything is done on the computer. It is something that needs to be addressed but totally ignored in any economic class. (If AOC is an example of what is learned ).
    Perhaps the problem lies with parents not expecting their adult children to contribute or discuss household expenses as long as they are living under the same roof. My family afforded the house we had because we all contributed to the household fund and none of us even expected our parents to pay our college costs. (Not that college got me a high-income job but it did give me great adaptation skills to other fields)
    Savings have to be part of your financial goals as essential to being self-sufficient.

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