Financial Planning by Decade: Your 40s

As a wealth management firm, Balentine is committed to providing peace of mind and simplicity to clients of all ages. In this series, we tackle some of the most common issues faced in each decade. Please talk to a Balentine relationship manager if you have additional questions about financial planning—regardless of age.

Welcome to your 40s! The roots that you planted in the previous two decades—careful financial planning and discipline—have taken hold to form the foundation of your life and are starting to pay (literal) dividends. We have great news: you’ve just entered your prime earning years! During this season of your life, it’s important to balance this newfound wealth creation with pragmatic saving for the future. Regardless of where you find yourself financially in your 40s, we have a number of suggestions for how to best position yourself for continued financial success:

1. Avoid lifestyle creep. As you develop in your career and/or come into wealth, it’s easy to get caught up in the excitement of what you can do with the additional funds: you finally have money for the home renovation about which you’ve been dreaming, or, better yet, a brand-new house! Whether it’s a few large purchases over a number of years or frequent smaller purchases every week, that money adds up quickly and may be better spent (or saved) elsewhere. Just as you did in your 20s and 30s, undertake a thorough review of your spending habits to identify potential blind spots—you’re sure to find a few. Consider reallocating those funds to increase your retirement contributions or boost college savings; your future self will thank you if you make your prime earning years your prime investing years.
2. Don’t touch your retirement accounts—except to increase contributions! As much as you may be tempted to dip into your retirement accounts to help cover the costs of your child’s wedding or to pay for a final year of college, carefully consider the consequences of doing so. Believe it or not, you’re more than halfway to retirement, so you don’t have as much time to recoup those loses. As much of a pain as it may be, your children can get loans for college (and even weddings—though we certainly don’t recommend it!), but you can’t do the same for your retirement. Unless you are absolutely certain that your children will have the means to help fund your retirement, do both of yourselves a favor by leaving your retirement funds alone. In fact, since you are entering your prime earning years, if you aren’t maxing out your retirement contributions, consider allocating a portion of any raises to increase your annual savings. If you target saving 25% to 50% of future raises, you’ll quickly begin to maximize your annual contributions and can use additional funds for your taxable savings.
3. Talk with your parents about their plans. According to Pew Research, nearly half (47%) of adults in their 40s and 50s have a parent age 65 or older and are either raising a young child or financially supporting a grown child. In fact, one-in-seven members of the so-called “Sandwich Generation” is financially supporting both a child and a parent. No one likes to talk about getting older and although it might be a conversation you’d prefer to avoid, don’t. The sooner you learn of your parents’ plans as they age, the better prepared you’ll be to support them—physically, emotionally, and maybe even financially.
4. Ensure your children are set up for the future. Whether your children are young or getting ready for college, utilize tools at your disposal to prepare them for the future. This includes teaching kids healthy financial habits, setting up 529 plans to save for their educations, and getting them engaged philanthropically. By starting these habits early, you can better secure your children’s future.
5. Evaluate your debt. While it may be true that not all debt is bad debt, it’s still best to have as little as possible. Review all of your outstanding financial obligations with an eye on eliminating high-interest debt as quickly as possible. If you have both the means and no pressing financial concerns, you may want to consider accelerating the date by which you pay off your mortgage, but only if your retirement savings are maxed out and you have an emergency fund in place.

As the saying goes, your best years are ahead of you—and with continued financial diligence, they’ll be even more enjoyable!

Balentine's unique approach to financial planning weaves together leading planning and quantitative risk assessment software with our own customized inputs incorporating our annual Capital Markets Forecast assumptions and proprietary strategies. This dynamic platform helps clients visually understand how changes to inputs impact the likelihood of success in achieving their goals. Please contact your Balentine Relationship Manager if you’d like to see “What If?” scenarios based on various education goals, investment assumptions, and contribution amounts.