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Managing Your Finances in your 40s and 50s

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By the time you’re 40…

  • Have at least 90 days worth of living expenses stored in an emergency savings fund.
  • Have at least double your annual salary in retirement savings. For example, if you earn $40,000 a year, your retirement account should have a balance of at least $80,000.
  • Have a Will and Power of Attorney in place.
  • If you have credit card debt, make sure you don’t owe more than 15 percent of the available balance.

By the time you’re 50… 

  • Have at least five times your annual income in retirement savings
  • Have short and long-term disability insurance
  • Your total unsecured debt should be less than 10 percent of your available credit
  • You should no longer have a car payment 
It’s important to have goals set throughout our lives. What those goals are depends largely on your age, your finances, and your lifestyle. As you go through life, and you achieve certain goals, it’s time to set new ones. As your future aspirations change, so should your goals. You need to be proactive in making sure they’re relevant to where you’re at in life now. This is especially important if you’re approaching retirement age.
 
Get Term Life Insurance:  As you enter your 40s, it's time to start thinking about how you would provide for your family should something unexpected happen to you.  Life insurance ensures that your funeral costs will be covered, and your spouse and kids will have access to your assets should you die prematurely.  It is generally true that your forties and even fifties are the time in life when you need more life insurance than any other time. 
 
Invest With an Eye Toward the Future: Your retirement plan at this point should include investments that are expected to last you past the age of 90. Create a balanced retirement plan to give yourself a comfortable life in your golden years and leaves enough to pass on significant assets to your heirs.
 
Rebalance Your Retirement Portfolio: Go over your retirement portfolio with your financial planner. Make sure that your investments carry minimal risk as you move closer to retirement.
 
Pay Off Your Mortgage: If you still owe any money on your house, now is the time to pay it off, so you can enjoy your home during retirement. Paying off your mortgage now ensures that you won't have to delay retirement in order to afford mortgage payments.
 
Having an Estate Plan in Place: At a minimum, you should at least have a legally-executed will in place, that will clearly spell out the distribution of your assets, as well as the care of your dependents. Once again, this is where adequate life insurance becomes important. It will provide the extra layer of support that your loved ones will need in the event of your death.
 
Maxing Out Your Retirement Contributions: It’s often difficult to do this earlier in your life, when you are trying to get yourself established, and particularly when you’re supporting a young family. But by the time you reach your forties, you should be in a position to regularly max out your superannuation contributions.  This will be especially important if you were unable to accumulate a large amount of money for retirement while you were in your twenties and thirties. Your forties and fifties are the time to make up catch up contributions you couldn’t afford to make before.
 
Getting Completely Out of Debt:  We’re talking credit cards, car loans, and other debts in addition to your mortgage.  It may be difficult to get out of debt completely while you’re still raising a family, but you should plan to be completely debt-free well in advance of retirement.  Not only will being being debt free lower your cost of living in retirement, but once again it will also provide additional cash flow to help fund your retirement.
 
Downsizing Your Life For Retirement:  By the time you reach your fifties, you should start to create at least a loose plan to downsize your life in preparation for retirement. Getting out of debt can and should be part of this plan, but you should also look at lifestyle choices as well.  First and foremost, is considering the possibility of downsizing your home. Owning the same four-bedroom, 2.5 bath, 2 car garage house on half an acre of land that you raised your family in may be a needless expense when you retire and it’s just you and your spouse.  Will you need two cars or can you get by with one?  You should begin to actively investigate the alternatives.
 
Preparing for a Retirement Lifestyle:  As you move past 50, an unpleasant reality begins to take hold in your life. Anyone your age can become expendable.  One reason is that older workers are usually higher on the pay scale.  Whether it’s fair or not, some employers have a preference for a more youthful staff. Whatever the reason, the likelihood of being phased-out of your job increases with age.
 
For this reason, you should work on being ready to retire at some point past age 50. In a way, that makes preparing for an early returement something close to a necessity. You should be ready to retire, even if you have no plans to do so.  At a minimum, this can involve having a large enough investment base — in combination with the relatively low cost of living — to provide you with sufficient income to supplement a greatly reduced income from employment.It may never happen, but it’s best to be prepared just in case it does.
 
In a real way, the financial milestones you should achieve in your forties and fifties are very much about getting you set up for retirement. That should put some real incentive into accomplishing them.