Financial risks in your forties
It was just 20 years ago that you were financially carefree. Twenty years from now you’ll be thinking about when to take Social Security. But your 40s are a major crossover point. It’s the decade when you first confront the big topics and start realizing there are big risks out there.
There’s no avoiding those worries, but you can lessen them by anticipating them and planning ways to protect yourself. The sooner you do, the better financial shape you’ll be in for the future.
Here are three wake-up calls—and suggested actions.
For more information, read "Financial Planning in Your Forties."
You’re sluggish about saving
People in their 40s usually have more immediate concerns than whether they’ll have enough savings to support them in their later years. But the financial stopwatch clicks on for real once you turn 40, notes Mark Coffey, a certified financial planner with Summit Financial Strategies in Columbus, Ohio. If you want to have good options when you reach age 65, Coffey says, “you need to create a pool of capital over the next 25 years after that.”
Action: Saving for retirement is like dieting: We understand that it’s something we really ought to do but tend to put it off. “For most people, it’s less painful to commit to a sacrifice someday in the future than it is to make one today,” says Coffey, who recommends a simple procrastination workaround. Assuming you can live within your means on your present salary, commit to save any future raises, bonuses, and windfalls. “If you get a 3.5 percent raise next year and commit to put that aside, and the next year get an additional 3.5 percent raise, you are now talking serious money going into future savings,” he says. And you’re making those investments without putting your present spending habits through painful cuts.
Your career lacks staying power
Turning 40 signals the start of your peak earning years, “the beginning of when you really need to be nailing it,” says Rick Kahler, founder of the Kahler Financial Group in Rapid City, S.D. That’s why you need to ask yourself, “Am I in a profession that is sustainable?” he says. If you can be replaced by a machine or somebody less expensive, or if the industry you’re in is stagnant or in decline, then you may be in for a tough time. Your No. 1 asset is your career, Kahler points out; you’ll want to make sure that asset has a bright future if you hope to profit from it.
Action: Do a rigorous and honest analysis not just of your job prospects but also of the future of your profession. Do you need to tweak it by getting some additional education? Or do you need to switch it up completely? Stay current in your field and industry. Take a course, attend industry conferences, and regularly read trade magazines and industry journals. Erase the blind spots by getting involved in an industry trade group or association. Maintain a network of business contacts that can help you stay abreast of trends and advise you on how to alter your skills to adapt to those changes. If you need to morph, Kahler says, “now is the time.”
You’re widowed at a young age
Chanel Reynolds never thought much about death—until the day her husband went for a quick bike ride and was hit by a van and killed. She didn’t know how much life insurance they had, or the password to unlock his phone and access his brokerage ac- count, or how she was going to pay the mortgage, let alone the medical bills. “All of that extra stress and pain could have been avoided with a few hours of organization and follow-through,” Reynolds wrote on the web- site she started to help others know what to do before tragedy strikes.
Action: Go through a financial fire drill, Coffey advises. Make sure that you have written and signed the four fundamental documents: a will, a durable financial power of attorney, a health care proxy, and a living will. In addition, put together a list of your financial accounts, the names of your attorney, financial adviser, plumber, electrician, etc., and their contact info, and, most important, passwords for your phone, computer, and financial accounts. Reynolds’ website (search her name) and others, such as everplans.com, offer helpful checklists.
—Catherine Fredman
This article appeared in the April 2015 edition of the Consumer Reports Money Adviser..
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