"If that money is still sitting there, you should definitely consider a Roth IRA conversion, especially because you still have a long time horizon to retirement age," explains Meermann. But I'll add that at this age, you may have switched jobs a few times, and it's likely you've rolled assets from a previous employer's 401(k) plan into an IRA. I wrote about this in detail not too long ago, so I'll direct you to that post for all the details. It sounds counterproductive (and painful) but it will actually help lock in your gains and make sure you're on track for the future. So you need to revisit your strategy and rebalance, which basically involves selling some winners and plowing those gains back into areas of your portfolio that haven't done quite as well. Shifts in the market can leave you too risky or too conservative, and as you age - or events in your life unfold - your risk tolerance may change.
This is a moving target, and you should check it about once a year, no matter how old you are. And it goes without saying that extensive travel requires a bigger nut. If you want to retire early, it's all about saving now and managing your risk. If you plan to continue working, you have a longer time horizon and you can get a bit more aggressive, says Meermann. You might have discovered a love for travel, or realized that you prefer staying closer to home.Īll of these things will affect not only how much you need for retirement, but how your money should be invested. Maybe you've found a job that you'd be happy working at well into your 60s and 70s, or you've decided that you'd rather pinch pennies now and completely relax later. At this point, you're probably a lot closer to knowing what you want that retirement to look like. Last week, we talked about using a calculator to figure out how much you need for retirement. At least six months of living expenses should be accessible in a savings or money market fund, in case you ever need it. Finally, an emergency fund is still important, no matter how secure you feel.
If you haven't quite gotten to this point yet, take a look at the leaks: Are you still paying off high-interest rate debt? Is your lifestyle more than you can afford? Go over your budget line by line and see where you can make cuts so more money is coming in than going out. Research shows that we automatically adjust to an increase in our income anyway, so why not make it work for you? When you find more money in your pocket - from a raise, a bonus, or paying off a debt like a car loan - add it to the pot. That allows you to shovel more and more money into retirement accounts. "You've progressed through the post-college years of your 20s, the 30s where most people are starting a family, and by the time you're in your 40s, you're probably cash-flow positive, meaning your income exceeds your expenditures," says Eric Meermann, a certified financial planner and the client services manager at Palisades Hudson Financial Group in Scarsdale, N.Y.
That, as you can imagine, helps a great deal when it comes to your financial strategy. You have a grip on your financial situation, whatever it may be, and probably some idea of your earning power in the future. In this shaky economy, people are changing paths at 50, 60 and even 70 with a lot of success). In most cases, 40 means you're a little more established in your career (but if you're not, don't worry.
We've made it to the 40s in our running series on investing (if you missed it, check out previous posts for tips in your 20s and 30s), and, while some of the advice remains the same, you have a few more things on your plate at this age.