Financial planning tips for folks in their 40s


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Your 40s are a pivotal point in your life. You may have a house, a family, aging parents, and a busy job by this time. College expenses for kids may be looming, as well as retirement a little farther off. Maybe you’re hatching a plan to start your own business soon or buy a beach house that’ll be your empty-nester home.


Each person will have unique financial goals in their 40s, which will depend on many factors, like lifestyle, salary, and acquired assets. Now is the perfect time to crystallize those dreams and get your money in top shape. You’re old enough to know what you want, and chances are, you have many peak earning years ahead.


Related: How to use your credit card wisely

Why Turning 40 Is a Big Deal

Where personal finances are concerned, your 40s are a big deal. You’re most likely approaching the height of your career and earning potential. Research from the Bureau of Labor Statistics says that primetime for earnings usually hits between age 35 and 54.


But you may also have many more expenses, such as planning for college for your children, planning for retirement, and caring for aging parents. Your 40s are a complicated decade where sound financial planning is crucial for a secure future.

Why It Is Not Too Late to Start Financial Planning in Your 40s

If there is one thing that is certain in life, it is uncertainty. Things change. Many people return to school in their 40s to boost their earning potential. Some take the plunge and dive into an entrepreneurial venture. Some leave the workforce entirely to focus on raising a family.


Whatever your life brings at this stage, you still have a couple of decades to plan for the years ahead, including your retirement, so set some goals now. It’s advisable to set long-term goals (5+ years), mid-term goals (2 to 5 years), and short-term goals (1 to 2 years). Having this staggered approach can help you balance your varied aspirations. Different timelines can demand different tactics.

Financial Planning Tips in Your 40s

So how exactly can you successfully manage your money in your 40s? Here are some tips for developing a financial strategy, saving money in your 40s, and more.

Pay Off Credit Cards and High-Interest Loans

Pay off as much high-interest debt as you can. This debt, typically the kind charged on credit cards, can be a major drain on your finances. Currently, credit card interest rates hover near 20%, which can throw a wrench in your budget if you’re carrying a balance.


You don’t need to stop using plastic completely, but you do want to whittle down what you owe. Credit cards can actually boost your credit score if you use them wisely and pay off the balance each month. If you can’t easily prioritize this debt and pay it down, options include:

  • Getting a balance transfer credit card, which will allow you to pay no or low interest for a period of time and catch up on payments
  • Taking out a debt consolidation loan at a lower rate to pay off the cards
  • Talking with a low- or no-fee credit counselor for guidance.

Invest in Physical and Mental Health

Healthcare can be one of the biggest expenses a person faces, so it pays to take care of yourself. The healthier you are, the fewer services and interventions you will likely need, and the less you will pay in deductibles each year. Most importantly, your quality of life and ability to earn will be so much greater if you are physically and mentally healthy. Take steps to assess your wellness and address any issues that are brewing. Also make sure that you choose the right health insurance plan for your specific situation.


If you have aging parents, talk to them about their health insurance plan and finances so that you understand how they are handling their wellness costs and have peace of mind.

Look More Closely at Retirement

At age 40, many people decide now is the right time to start saving for retirement. Or perhaps they already have a retirement plan or a 401(k) through their employer that they haven’t revisited recently.


Whatever your exact situation, your 40s are a good time to focus on your plan. You might think about increasing your 401(k) contributions, opening a Roth IRA, or finding a taxable investment account. Also, if you get a raise or bonus, why not put a chunk of it towards saving for your future?


You’ll likely want to consider how much of a nest egg you will need to retire and whether your current plan will get you there. If you pay for a professional financial planner, they can help you figure out how to save money in your 40s and maintain your desired standard of living into retirement.

Plan for Children’s Expenses (College, Careers)

It can be a shock when you realize that your baby is suddenly heading to college, and the cost of paying for their education may be an even greater surprise—and not necessarily a pleasant one. It can be very expensive. That’s why, when it comes to budgeting for couples or single parents, paying for higher education is often a major (and majorly challenging) goal.


There are saving plans specifically designed for college; for instance, 529 plans offer many benefits. If your children are not headed to college, other savings options like certificates of deposit (CDs) might be a better way to invest in their future. Teach your children sound financial management skills so you won’t be supporting them in their adulthood.


Some people go back to school in their 40s to help them move to the next level at work or prepare for a new career. If you are among them, create a budget that includes all your expenses and income. Project those numbers into the next few years to help you plan your life and stay on track financially.

Choose or Revisit Insurance Plans

In addition to health insurance mentioned above, your 40s can be a good time to consider disability insurance. If something happens to you and you cannot work, you could be forced to use your retirement and emergency funds sooner. Whether you choose short-term vs. long-term disability insurance, a policy can protect you by providing a safety net.


Death is an unavoidable life event, so review your life insurance policy (could you get a better deal elsewhere?) and be sure you have drafted a will. Parents who plan and pay for their funerals ahead of time ease the burden on dependents. The median cost of a traditional funeral is around $7,848, according to the National Funeral Directors Association. An insurance policy, a payable-on-death account, or prepaying at a funeral home can be good options to fund end-of-life expenses.


If you are shopping for life insurance, there are many online comparison tools that let you quickly see some different offers and how they stack up. It’s an easy way to start the process.

Keep Emergency Funds in Good Shape

Life is full of unexpected twists and turns. Some of them are not so fun, like having your car conk out, the roof leak, or your job suddenly come to an end. In times like those, you will need access to funds to cover your costs. That’s why having an emergency fund is important; with enough money to cover three to six months’ worth of your basic living expenses in a savings account, you’ll have peace of mind. If you don’t yet have a rainy day fund, start putting money aside each month (even just $25). Funnel any “found money” (say, a tax refund) to this savings account too.

Invest in a Diversified Portfolio

Growing your wealth often involves investing. While it does carry risk, it can yield big rewards. For instance, the annualized Standard and Poor’s (S&P) 500 return over the last 10 years was a healthy 14.7%. You might invest on your own, with a broker, or with automated financial planning. The vehicles you choose will depend on your risk tolerance. Some people invest in CDs and bonds, which are relatively low risk, while others enjoy speculating on the stock market. Manage your risk by never investing more than you can afford to lose.


Some people prefer to invest in stocks using dollar-cost averaging—investing a fixed dollar amount regularly, regardless of the share price—which can help you to build a diversified portfolio while minimizing volatility over the long term.

How Technology Can Make Managing Finances Easier

Managing finances and investments is so much easier in the digital age. Mobile banking and finance apps mean that you can manage your finances from your armchair 24/7. Online lenders offer favorable investment and savings options, and online trading platforms allow anyone to trade on the stock markets.

Where Should I Be Financially by 40?

Financial goals by age 40 vary. One rule of thumb is to save 15% of your income each year, but this figure is subjective and depends on many factors, including your existing assets.

The Takeaway

It’s never too late to take control of your finances. In your 40s, you are likely entering your prime earning years, so it’s a good moment to focus on paying down debt, preparing for the next chapter of your children’s lives, and saving and investing to get ready for retirement. With some wise money moves, you’ll be set to make the most of this decade and beyond.


What financial goals should a 40-year-old have?

Ideally, a 40-year-old would be building a nest egg for retirement, paying down high-interest debt, and finding ways to sensibly pay for children’s college fees and meet other financial obligations. How much anyone needs to achieve these goals depends on many factors, such as lifestyle, income, and financial obligations.

How much should a 40-year-old have saved?

How much a 40-year-old should have saved depends on their current and future lifestyle and needs. A rule of thumb is to save 15% of your income each year towards retirement, but it will be different for everyone.

How can I build my wealth in my 40s?

You can build wealth in your 40s by paying down high-interest debt, choosing the right savings and investment vehicles, and planning for retirement.


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This article originally appeared on and was syndicated by


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8 smart ways to boost your retirement savings


Saving money in your company’s retirement plan is one of the easiest ways to invest in your future. The money automatically comes out of your paycheck and is invested on a regular basis. Some people even have the benefit of an employer match that can help them max out a 401(k)’s potential. But did you know there are also some 401(k) hacks that can boost your retirement savings even more?

Follow along to learn some of the little-known ways you can save more money, earn higher returns by making some savvy money moves and reach your retirement goals quicker.

Related: 8 brilliant moves if you make more than $5,000/month




Company retirement plans typically offer a handful of mutual funds and other investments to choose from. When you first sign up for your company’s 401(k) retirement plan, if you don’t make a choice, your money will be invested in a default option. Depending upon your company’s policies, this usually means a money market, stable value, or target-date fund.

So what’s the 401(k) hack? To reach your retirement goals, you’ll want to personalize where your 401(k) contributions are being invested. Factors to think about include your tolerance for risk, time frame for retirement and the available investment options.

As you reviewing your investment choices, think about these details:

  • Look at the expense ratio of each fund. The expense ratio is how much the fund manager charges to manage that investment. The lower this number is, the better. Funds that track an index typically charge less than funds with a manager who manually researches and selects stocks.
  • Avoid focusing on past returns. Historical returns show how an investment has performed over time. These returns may factor into your decision, but remember they do not guarantee future performance.
  • What does it invest in? Don’t pick multiple investments that invest in the same stocks and bonds. Instead, pick a diverse portfolio with different types of stocks and bonds from both the U.S. and foreign countries.

If your company’s retirement plan is filled with investment choices that have high expense ratios, speak with your human resources department or manager. Request that they review the plan and consider finding a new plan sponsor. You may even share some low-cost index fund alternatives like Vanguard or Fidelity for them to consider.




As you change jobs throughout your career, you may be leaving something valuable behind with each move — your old 401(k) account at your old job. It makes sense to move this money as quickly as possible so a few things don’t happen:

  • The old employer cashes out the 401(k) account and mails you a check or moves the money to an IRA of its choosing (if less than $5,000)
  • The money is forgotten about and transferred to the state
  • Your heirs never know about the money
  • The money is not factored into progress toward your retirement goals

When you leave a job, you have several options for what you can do with your old 401(k):

  • Roll over the 401(k) into an IRA. Doing a 401(k) to IRA rollover is a popular choice because you have more control over which company you choose to work with and your investment options.
  • Transfer the 401(k) into your new employer’s plan. Transferring into your new 401(k) makes your savings easier to monitor because all your funds are in one account. Company retirement plans also offer more protection from creditors than IRAs.
  • Leave it in your old company’s plan. Some companies do not allow low-balance accounts to remain in their plans, and they may either issue you a check or roll over the funds into an IRA of their choosing, so this may not be an option.
  • Cash out the balance. This can have devastating impacts on your retirement savings because you’ll lose out on the opportunity to earn tax-deferred gains between now and your retirement age. You’ll also pay taxes on the money plus a 10% early withdrawal penalty.

When transferring to your new 401(k) or rolling over to an IRA, it is best to have your old 401(k) send the money directly to your new retirement account. If the money is sent to you, it could trigger taxes and penalties depending on how the check is written and how long you hold onto the money.




A lot of people don’t make enough money to max out their retirement accounts when they first start investing. Instead, they start out with a small retirement plan contribution. They mean to increase it, but often forget as work and personal life responsibilities take center stage.

An easy hack is to increase your 401(k) contribution every year when you get your raise. You won’t miss this extra money because it was never in your paycheck to begin with. Over the course of several years, you’ll get closer to maxing out your retirement account while putting away larger and larger amounts of money for your future.

For example, if you get a 3% raise, consider increasing your 401(k) contribution by 1% or 2%. Because so many other bills don’t increase every year, like your mortgage or auto payment, investing a portion of your raise is easier to do.

One way to automate this process is to sign up for the auto-escalation of retirement contributions. Not all 401(k) plans offer this, so check with your HR department or manager to find out. Auto-escalation increases your retirement plan contributions automatically so you don’t have to remember.

If your company does not offer auto-escalation, set a calendar reminder for your pay raise date so you can manually make the change.


Investment returns vary from year to year for each type of investment. When you have a mix of investments in your account, this can change the composition of your portfolio from what you intended. But you chose the composition of your portfolio because it would help you best reach your financial goals. So to bring your account back into alignment, you should do what’s known as a rebalance every so often.

When you rebalance, you sell some of the investments that went up in value, while buying more of those that went down. The image above is what it looks like when a portfolio goes out of alignment and then how a rebalance can fix things.

Two popular strategies to consider when rebalancing:

  • Rebalance once a year (e.g., on your birthday)
  • Rebalance when an asset’s allocation changes by more than 5% (e.g., from 50% to 55% of your total account balance)

Pick one of these strategies and make the rebalancing hack a regular part of your 401(k) maintenance.


Current IRS rules allow for people under 50 years old to contribute $19,500 per year to their 401(k) plan. People 50 and over can contribute another $6,500 per year, for a total of $26,000.

If you are able to save more than these amounts, consider fully funding an IRA account. You can choose a traditional IRA for the tax-deduction or a Roth IRA for tax-free money in retirement. The maximum contribution to an IRA is $6,000 per year (plus $1,000 if over age 50).

But what about those who are unable to contribute fully to an IRA or who want to invest even more money?

It is possible to contribute even more money to your 401(k) plan as after-tax contributions, even if you have a traditional 401(k) vs. a Roth 401(k). The combined 401(k) contribution limit for 2020 is $57,000 (or 100% of your compensation, whichever is lower).

To calculate your after-tax contribution, subtract these amounts from the $57,000 limit:

  • Your total 401(k) contributions from your paycheck (maximum of $19,500 or $26,000 for investors aged 50 or over)
  • Your total employer match amount

The amount remaining is the maximum after-tax contribution that you can make. This is a maximum, so you can always contribute less.

After-tax contributions can be withdrawn at any time without paying taxes or penalties. However, any earnings are considered pre-tax balances, so there are taxes owed on withdrawals of earnings. You must withdraw earnings when withdrawing after-tax contributions, so there will be some taxes owed on withdrawals. Consider this when you do your tax planning for your retirement years.

Your after-tax contributions can also be converted into a Roth IRA. This allows your after-tax contributions to grow tax-deferred and withdrawals to be tax-free. You may have to wait until after you leave your job to do this because not all companies allow in-service 401(k) conversions.


For investors with a side hustle, opening a solo 401(k) is a great hack, especially if you don’t have a company retirement plan at your day job. These accounts allow the self-employed and small business owners with no employees to set aside a portion of their business profits. If you are under 50 years old, you can contribute up to $19,500 from your salary, plus the company can contribute up to 25% of your compensation.

For example, if you are under 50 years old and earn $50,000 in wages from your business, you can contribute $19,500, and the company can contribute another $12,500. This results in a total solo 401(k) contribution of $32,000 for the year. If you are older than 50, you are allowed an additional catch-up contribution of $6,500.

You can set up a solo 401(k) at investment firms like Vanguard and Fidelity, and if you have a 401(k) from your employer, you can still have a solo 401(k). There are contribution limits on a solo 401(k), and the contributions from both your employer’s plan and your solo plan will count toward your annual maximum.




Reaching the age of 65 is usually the target for retirement. However, the FIRE movement (financial independence, retire early) is gaining in popularity and many now aspire to achieve early retirement. Usually, retirees are required to wait until they reach 59 1/2 before they can start to withdraw from retirement accounts and avoid penalties. However, there is a hack to access your 401(k) retirement account early without incurring a penalty. It is based on Internal Revenue Code and is known as the Rule of 55.

The Rule of 55 allows workers who leave their job during the year they turn 55 years of age or older to withdraw money from their 401(k) accounts without a penalty. No matter the reason for leaving your job — if you quit, got fired, or were laid off — as long as you meet the age requirement, you are good. Even better people who are qualified safety employees for the federal, state, or local government may start making penalty-free withdrawals at age 50.

Keep in mind that the Rule of 55 doesn’t apply to all retirement accounts. It applies only to the 401(k) at the employer you are leaving. For this reason, it may make sense to roll over your old 401(k) accounts into your current employer account in order to have more funds available.

Although you can take advantage of the Rule of 55, it may not make sense to. With the average life expectancy being almost 79 years in the U.S., you should allow your tax-deferred retirement accounts to grow for as long as possible. You may want to withdraw money from your taxable brokerage account or have other income sources, such as real estate investments, to pay your bills while waiting for the traditional retirement age.


When people think about financial advisors, they usually think about their IRAs and brokerage accounts. Financial advisors typically don’t manage your 401(k), but they can still provide advice on investment selection. This advice could help you avoid costly retirement mistakes.

If you think about it, an advisor should want to help you with your company retirement plan, even if they aren’t getting paid for it. The bigger those assets grow, the larger the investment opportunity will be when you leave your job or retire.




Saving for retirement can be a daunting task. It makes sense to contribute as much as you can to retirement accounts like a 401(k) every year. Even if you can’t max them out right away, start small and increase your contributions every year to maximize these tax-advantaged retirement accounts. Follow the steps above to increase your savings rates, boost your returns, and manage your accounts better.

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