Investing Tips for 40-Somethings

Time To Read 3 MIN READ

January 17, 2017

When you're in your 40s, you are passing through a life stage that brings with it many money pressures. You're looking toward a retirement that requires adequate funding, while your kids may be planning for college. Here are a few tips that can help balance the competing and urgent financial goals of 40-somethings.


Put Together an Overview of Your Retirement Goals

Every adult needs a financial plan, but 40-somethings are at a time of life when a road map to investments is particularly useful. Try putting one together in three steps: 


  • Assess what you'll need to retire. This figure is sometimes calculated at 15 times what you expect to earn annually just before retirement.


  • Figure out how much you'll need to invest in retirement accounts from each paycheck in order to meet your goal.


  • Determine your level of investment risk — sometimes called risk tolerance. Are you willing to allocate some funds to higher-risk investments in your 40s?


Don't Neglect Putting Aside Money for Cash Reserves

Smack in the middle of their career lives, many 40-somethings may disregard the need for cash reserves, but emergencies requiring cash on hand are just as likely to strike at this point in life as in any other. 

Building an emergency fund for six months of living expenses should be high on your financial priority list. Two-income households may be safe enough with three months in liquid assets, but still, strive for the full six months.


Take Advantage of Employee Benefit Packages

As a 40-something, your time is fully booked between work, family and fun, but keep one eye on your employee benefit package. Take the time to figure out how your benefit plan works, to maximize your contributions. 

If you are offered the opportunity of investing in 401(k) accounts at work, jump on it from day one, especially once you get to your mid-40s and retirement is on the horizon. In 401(k) investment plans, you pick the percentage of your paycheck that goes directly into your retirement account. In some plans, the amount is matched by employer funds.


Put Money Toward College Expenses -- Your Own and Your Kids'

In your 40s, you may be sandwiched financially between the need to pay off your own student loans and saving for your kids' college educations. It's best to pay off your old student loans as quickly as possible, unless the interest is tax deductible, so figure out what works best financially. 

At the same time, start saving for your kids' education in a 529 plan as early as possible. A 529 plan, named for Section 529 of the federal tax code, is a college savings account that's exempt from federal taxes. These accounts also offer tax benefits at the state level for residents of states with income taxes.