In Your 40s and Looking Towards RetirementHopefully if you are in your forties you have been saving for a number of years for some type of retirement. Maybe through a company sponsored 401K or an IRA or a combination of both you have some retirement savings. However, after the dismal decade for stocks, many people are starting to realize they are not where they need to be at this stage of the career.
The good news is you still have some time to get things in high gear. In addition to continuing with your 401K or IRA, your forties are the time to put a plan in place to get other things going. There are several things you might consider as you look towards the second half of your earning years.
First, adjust some expectations on your retirement age. The average worker who is in their forties today probably will not be able to retire between 60 and 65 as their parents did. The reason is that people are living longer. Take good care of yourself and if do have to work past 65 you are prepared to do so. Also, if you have to stretch your working years, if you are in good shape, you still should have plenty of golden years left even if you work to 70.
Second, start planning on some alternate sources of income in addition to your 401K or IRA. In my opinion, based on the last 10 years, the stock market is not the vehicle to depend on for consistent growth and security late in life. There are a lot of ways to plan for other income streams, but it would be best to start in your forties, not when you are in your late fifties. For example, what if you purchased a rent house right now? If you kept it rented and were diligent on payments and upkeep, you could have a paid off house by the time you turn 65 – thus you have an asset and another monthly income stream. If rental properties are not for you, there are other forms of income such as an online business. However, these things take time to develop so you have to get started now.
Third, if you have not done so at this point, start a ROTH IRA. In the next 20 years taxes will be going up rather than down. A ROTH IRA grows and can be withdrawn tax free. Even if you have to scale back your 401K or IRA contributions to have funds to put in the ROTH, it is probably to your advantage to do this. However, if your company offers a 401K match, it is best to maximize your 401K contribution to get the match, so do not drop below that level.
Last, pay off your house. For most people, their house is one of their largest assets, however, it is usually one of their largest expenses too. Still paying a mortgage payment when you are 65 will not help your retirement objectives. Think about your financial picture today and where would you be without your mortgage payment? Probably a lot better off and the same holds true in retirement, you will be a lot better off financial without that payment. Put a plan in place today to have a paid off house before you stop working.