Lifecycle Planning in Your Forties

Personal Financial Planning Strategies for 40-Somethings

Lifecycle Planning in Your Forties
September 1, 2016

Note: This is the third in a series of Lifecycle Planning articles for every age group.

In this series of articles, we have been describing some of the personal financial planning challenges faced by Americans during different life stages. Most recently, we looked at how many people in their 30s have started to advance in their careers and are enjoying a higher level of income than at any other period in their life.

At the same time, though, many of them have a lot more financial responsibility, especially if they have gotten married and started a family. Often, the biggest financial challenge is balancing the demands and responsibilities that they face during this life stage.

More of the Same

The 40s represent more of the same financial challenges and opportunities for many people. A decade later, however, they may be even more intense. For example:

  • You and your spouse may have both climbed the success ladder to upper-management positions and your combined household income is now in the comfortable six-figure range.
  • However, your expenses have climbed right along with your income. You recently moved into your dream home, which nearly doubled your monthly mortgage, and your teenage kids will soon be driving (now that’s a scary thought!) and then headed off to college — another large looming expense.
  • In addition, you are also helping support your aging parents, who have had to move into an assisted living facility. Thus, you have joined the “sandwich generation” of Americans responsible for raising kids and supporting parents at the same time.
  • You also realize that saving money for retirement should be a top financial priority during this life stage. However, with all your current expenses, you and your spouse are having a hard time setting aside money in your 401(k) plans each pay period.

The financial challenges of 40-somethings who are in the sandwich generation are especially acute. According to the Pew Research Center, almost half (47 percent) of all Americans in their 40s and 50s are raising a young child or financially supporting a grown child and have a parent age 65 or older. A similar percentage (48 percent) has provided some financial support to at least one grown child in the past year, with one-quarter (27 percent) providing the primary support. Moreover, 21 percent have provided financial support to a parent age 65 or older.



Making Trade-Offs

Of course, you want to give your kids the best of everything and to help support your parents financially, since they have always been there for you. In addition, you want to set aside enough money to send your kids to a good college and secure a comfortable retirement for you and your spouse. Nevertheless, while these are good intentions, the reality is that you might have to start making some financial tradeoffs.

Sometimes, 40-somethings in this situation make the mistake of letting priorities that seem to be the most urgent, like helping their parents pay for assisted living or beefing up the kids’ college savings fund, carry the most weight. Saving for retirement, in contrast, seems like a lesser priority since it may still be at least twenty years away.

However, when you delay saving for retirement, you miss out on long-term, tax-advantaged, portfolio growth potential and the opportunity to benefit from compounding returns. When it comes to saving for retirement, your biggest advantage is time. Every year in your 40s that you put off maximizing contributions to your retirement plan is a year that you can never get back. Additionally, your company may provide a "matching contribution" in your 401(k) and missing these matching contributions can be a significant financial mistake.

Here is one way to look at it: By not making saving for retirement a priority now, you could actually be jeopardizing your children’s financial futures down the road. Because if you do not have enough money to pay for your own living expenses, healthcare and/or assisted living costs when you are older, you could end up being a financial burden on them.

When you review the numbers it is often advantageous to continue saving for your retirement as planned. Any additional money left over after paying your household expenses, if any, can be put aside for your kids’ college education. Remember, they may get scholarships and/or student loans on their own and more importantly, they may not even choose to attend college. But you are guaranteed to want to retire at some point so you should probably put your own retirement savings needs first.

Welcome to Middle Age!

The 40s represent the beginning of middle age and a true transitional stage for many people, in both lifestyle and finances. The kids are growing up and possibly moving out of the house, and the parents are aging and possibly in need of assistance, whether in their daily living activities, their finances or both.

As you make some of the tradeoffs that are inevitable during this stage, don’t let what seems to be most urgent necessarily be your top priority. Keep your eye on the long term, not just the here-and-now, in order to lay a solid foundation for the rest of your financial life.

Brad is a Registered Representative with, and Securities and Advisory Services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. CA Insurance License #: 0B22199.


Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.

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