Financial advice is abundant for retiring adults, and for millennials, too. But what about the folks in the middle?
If you're in your 40s, you're in an interesting financial spot because you likely already have a career and a home, and you may even have a solid plan for retirement. Although it may seem like a great place to be, there are still pitfalls that need to be avoided.
1. Not saving enough
It may be decades away, but you need to think about how much money you'll need in retirement, after you stop pulling in normal-sized paychecks.
The median retirement savings for Gen Xers (Americans between ages 40 and 54) was $35,000 in 2017, as revealed by a study from Allianz.
But you'll need much more than that. By one popular formula, you should have approximately three times your salary saved by age 40.
Keep in mind that the cost of living may be higher by the time you retire, and you'll likely have greater medical expenses. Plus, Social Security, which already doesn't go very far, is running out of money.
2. Raiding retirement funds to pay for your kid's college
It's natural for parents to want to help their kids pay for college, but taking money out of your retirement account to pay for a child's education will take a big bite out of your savings. That's especially true if you have only $35,000 saved so far, which is the median for your age group.
A young adult in college is about to enter the workforce, while a middle-aged parent will be exiting the workforce before long. Your child will make more money in the next few decades than you will.
If you can't afford to support your children without dipping into your retirement funds, consider helping them find scholarships or even reasonable student loan terms instead — while helping them out financially where you can.
3. Not having enough insurance
As morbid as it may sound, the chances of an unexpected passing or career-ending injury increase for adults over 40. Unintentional falls are the leading cause of non-life-threatening injuries, and "unintentional injuries" become one of the main causes of death in adults ages 34 to 54, the Centers for Disease Control and Prevention reports.
Life insurance and disability insurance may have seemed like optional luxuries as a young adult, but in your 40s these types of policies become necessities.
If you're suddenly unable to support your family because of an accident that's life-changing — or worse — insurance will help keep the people you love out of financial danger.
4. Putting off estate planning
Estate planning helps determine where your assets end up in the event of your death. While no one wants to think about dying (not to be a buzzkill or anything), those who avoid this crucial step put their loved ones in a lurch.
If you don't have your wishes legally documented, your assets could be withheld from the people you care about the most.
Even if you don't have much to leave behind, estate planning can help your loved ones avoid a big money mess while they're grieving. Good planning can be as simple as setting up beneficiaries for your current savings account and retirement accounts.
5. Not talking with your parents about their finances
When people are in their 40s, their parents are often nearing an age when their health may decline dramatically.
One medical emergency could leave your once-healthy parents needing your constant care.
If this happens, it will also be your responsibility to handle their finances. Without making them feel uncomfortable, you need an understanding of your parents' financial health.
6. Refinancing into another 30-year mortgage
It's best to hold a mortgage while you have regular income coming in. Even with the best planning, many elderly adults find themselves in precarious financial situations if they're still making payments on a mortgage in retirement.
In your 40s, you can be tempted to refinance and free up home equity — to fund a remodel or to lower your monthly house payments. But this decision can lead to regret during retirement.
If refinancing is the right choice for you, considering refinancing into a 15-year mortgage instead of a longer-term loan — if you can afford it.
7. Mortgage tunnel vision
There are disadvantages to every situation. Some adults who hate debt pour all of their extra income into paying off their mortgages, but that's not always the right move.
If you put everything you have into your mortgage, you'll stretch your money thin and will miss out on other, better things to do with those funds.
Good reasons not to pay off your mortgage early include leaving yourself extra cash to invest — so you can let compound interest work for you, and generate returns higher than the interest you're paying on your mortgage.
This way, when you eventually do pay off your home, you'll have plenty of money to live on.
8. Letting credit card balances run amok
Doing a lot of spending on credit cards may not seem like a big deal to most 40-something adults, because they have the income to pay them off. But keeping a high credit card balance — or worse, maxing out your cards — is terrible for your credit score.
High or maxed balances make your credit utilization percentage skyrocket, and credit utilization is one of the biggest factors that affect your credit score.
Plus, as soon as you miss a payment, late fees and interest start to pile up. You might quickly find yourself in debt.
In your 40s, you want to focus on getting rid of monthly bills, to have the most money available for retirement. And at least make sure you use a card that offers good cash back or other rewards, so you'll get something back from your plastic.
9. Having a puny emergency fund
Everyone should have enough money put away to get by on for as long as six months, because emergencies happen. People get sick and wind up in the hospital, layoffs take their toll, broken-down cars cost a fortune, and so do flooded basements that cause water damage.
So be prepared — and build up your stash of emergency cash.
10. Spending too much to remodel your home
The typical range for a major home remodeling job is $18,500 to $75,000, according to HomeAdvisor. The national average is $45,000.
We get it: You really hate that asphalt roof, and you're looking to put in some slate.
But if the roof isn't in serious disrepair, you can probably just keep living with the asphalt — and use the money instead to build up your emergency fund or retirement savings.
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