What You Need to Know to Manage Your Finances in Your 40s – Part 2

Last month we shared five pieces of information about managing personal finance in your 40s in “What You Need to Know to Manage Your Finances in Your 40s- part one.” In part two of this series, we provide five more tips for putting your best foot forward moneywise in middle-age. Read on for details.

Save for college:

For decades, average college expenses have risen faster than the average rate of inflation. So, if you have kids, you’re likely feeling the pressure to save for their college education. One way to alleviate that stress is to invest in a 529 college savings plan.  These accounts are specifically designed to save for educational expenses, especially post-secondary education such as college or graduate school.  Aside from potential investment growth, they come with tax advantages, such as tax-free withdrawals for qualified expenses.  Some states even offer tax deductions for contributions. So, 529 accounts are an ideal vehicle for college savings.  But make sure to place your own retirement savings as a higher priority.  Invest in your children’s 529 only after you have sufficiently saved for your own retirement savings.  At the end of the day, your children will have many options to pay for college, including loans, grants, scholarships, and work/study programs.  In contrast, your options for retirement funding will be limited.  As they tell us on airplane flights, “put on your own oxygen mask before helping others.” 

Help your parents: 

By the time you reach your 40s, you have likely become a part of the “sandwich generation,” meaning you are caring for your kids and your parents at the same time. Slowly but surely, you may find yourself involved in your parents’ care more, with that care coming in the form of providing physical care yourself, supervising others who provide that help, or paying for your parents’ expenses.  It can even mean parents moving in with you, which can drastically change your lifestyle and financial situation.  So, make sure to appropriately budget these costs in your financial plan and avoid underestimating your expenses and income needs.  It is also critical to have a comprehensive conversation with your parents about their financial plan and together develop a viable long-term care plan for them.  

Protect yourself with the right insurance:

Build a backup plan for your family to ensure that they are properly protected if someone is stricken with a health impairment (illness or injury) or if something happens to you or your spouse (such as disability, incapacity, or death).  That means having the right health, disability and life insurance.  So, your 40s are an opportune time to review your insurance coverage and ensure that you have an appropriate contingency plan.  If you currently don’t have an employer sponsored group health insurance plan, explore options at the government-operated health insurance marketplace (healthcare.gov), which provides affordable healthcare insurance for qualifying individuals via tax subsidies.  And to protect your family in case you are unable to work, make sure you have disability insurance.  In addition, review your life insurance death benefit coverage for yourself and your spouse (even if he/she is a “stay at home” spouse). In fact, your 40s are probably the last time you’ll be able to afford meaningful life insurance at a reasonable price.  That’s because once you reach your 50s, you are more likely to be diagnosed with serious health issues, making it more likely that your life insurance will be either more expensive or unavailable.  Suffice it to say, if you do find that you and your spouse are short of life insurance coverage, make the most of this opportunity to obtain more coverage. 

Update your estate plan: 

If you don’t have an estate plan already, this is the time to establish one.  And if you already have one, but you’ve undergone significant life changes since (marriage, divorce, birth of a new child, adoption, new business venture, new property purchase, growth in asset value, death, and/or inheritance), this is an opportune time to update it.  A core estate plan generally consists of a will, a financial power of attorney, and a healthcare advance directive (which typically includes a healthcare power of attorney, a living will, and a Do Not Resuscitate order). However, at its most basic level, estate planning also involves ensuring that your assets have the proper account titles and beneficiaries.  In addition, depending on your situation, it may include a trust.  Building and updating an estate plan can be complicated and requires legal expertise. So, seek professional help from an estate planning attorney.

Ask for help:

Lastly, don’t be shy about seeking professional help.  Find a trusted advisor you can work with in evaluating your risks and opportunities.  A well-equipped financial professional can partner with you to develop the right plan and make sure you stay on track.  When working with a financial professional, look for someone who has obtained the CERTIFIED FINANCIAL PLANNER™ certification, which is the industry’s gold standard.  A CERTIFIED FINANCIAL PLANNER™ professional has a fiduciary duty to act in the client’s best interest, and they are equipped to provide objective and comprehensive financial help.  In fact, if you are an MMBB member, financial planning is available as part of your membership at no cost. Reach out to us and ask to speak with a Financial Planning Specialist.  They’ll be glad to help you! 

Final word:

As you can see, your 40s are a pivotal turning point.  Your decisions impact more people than just yourself.  Every decision, good or bad, has deeper meaning and greater reach.  Therefore, it’s vital that you’re on top of your game and make the right moves.  So, consider these tips as a roadmap for your 40s and speak to your financial planner!