Many professionals are at the pinnacle of their careers in their 40s and 50s. They’ve worked hard to achieve certain positions, responsibilities, salaries – and maybe even hold an esteemed status or recognition in the community. While that focus is important and admirable, it’s key to remember that these two decades of life are critical for your retirement planning and attention must be paid to that end goal. In this article, I’ll outline the important considerations to help with your planning and keep you on track throughout your 40s and 50s.

In Your 40s …

Many individuals today find themselves making the most money they ever have when they reach their 40s – and on the flip side, spending more money that they ever have. They’ve upgraded their homes, bought new cars, taken great vacations, and are perhaps paying for their children’s education. Regardless, there are certain fundamentals I recommend those in their 40s follow to ensure the health of their financial futures:

1. Take a detailed inventory of your assets and liabilities
   Now is the time to get organized. You may have an accumulation of investment accounts from various employers. What about your long-term and short-term debt? Gather and document all of these items so you’ll have a glimpse of what your overall financial picture currently looks like.
2. Determine what expenses you’ll have within the next 10-15 years
   Many of the expenses you’ll face during this period in your life are among the largest you’ll ever have. Depending on your children’s ages and educational plans, you may be considering private school tuition for grade school and high school, and you could also be looking forward to multiple kids in college at the same time. If your family is growing, a larger house may be in your future as well. Consider the health of your parents, spouse, and close family members who may depend on you for help if tragedy were to strike. If any of these, or other financial scenarios exist for you, consider how they may fit into your overall plan.
3. Develop a financial plan
   If you haven’t done so already, it’s imperative that you create a financial plan. Once you’ve inventoried your assets and liabilities, begin to think about what retirement looks like for you. What are your goals? What are the types of things you want to do in retirement? Next, consider your risk tolerance. Your retirement picture, savings rate, future expense needs, and timeframe all should help mold your investment allocation. If you do already have a plan, take the time to re-assess and determine if you’re on track, identify how you can maximize what you’re doing, and find efficiencies. When developing your plan, be sure that your spouse or partner is involved in the discussion. Finding out what truly is important to you BOTH can help create a more clear retirement picture and plan.
4. Anticipate what risks may occur that could disrupt your plan
   While the expenses listed above will impact your plan, you should anticipate other events as well. Market corrections and downturns can (and do) happen. What can you do to help mitigate risk in a down market? What will you do if you have to care for an aging parent? What if a spouse becomes disabled?
5. Talk to your parents
   Although it’s hard to face, you’ve reached the age where your parents are getting older. Ask them what their wishes are while they’re still of sound mind and body. Be sure you understand what they want your role to be, and what to do (or who to contact) in the event of their deaths.
6. Complete or Review your Estate Plan
   Have you completed your basic Estate Plan documents with an attorney? When was the last time these were reviewed? Most often people fail to review these documents on a consistent basis. Perhaps a previous chosen guardian for your kids needs to be changed. Or, you’ve saved a substantial amount of assets and would like to control when your children can receive those funds should something happen to you and your spouse. Sit down with an attorney and your advisor to discuss different strategies and implement accordingly.

In Your 50s …

When you turn 50, you’ve officially reached crunch time. You’re getting closer to retirement, and you need to be focused on saving as much as you possibly can so that you’re prepared.

1. Clearly define what retirement looks like for you
   Really think about what you want to be doing in retirement. Does that vision include travel, or downsizing to a smaller home? Perhaps you’re planning to spend time volunteering for your favorite charities, or even going on mission trips. Or, retirement could include a part-time job. Regardless, get clear on what your lifestyle will be.
2. Understand what you need to live on
   Based on the vision of retirement you’ve created, begin to calculate what your monthly expenses will be to determine what income you’ll need. Remember that you’ll have expenses like repairs to your home and car, or medical and long-term care expenses to factor in. Be sure to plan for all of these and always expect the unexpected.
3. Review your Social Security
   Income from social security will make up a portion of your overall retirement income. Determine how it fits in with your overall financial plan, and the gap you’ll need to make up with your investments in order to have enough money to live on.
4. Analyze your current debt
   Consider what bills you want to pay off (or pay down) before retirement. It may make sense for you to pay off things like credit card debt or even your home mortgage depending on your situation. Regardless, make objective decisions based on the numbers.
5. Begin to develop your income and tax strategy for retirement
   While you’ve spent your career being a good saver and developing a solid financial plan that you’ve faithfully followed, remember that there must be a plan for accessing these funds in retirement to minimize your tax exposure. This plan should include when and how to withdraw funds from accounts like your taxable accounts or Roth IRA for which you’ve already paid taxes, versus when and how to withdraw from pre-tax accounts such as your 401k for which you’ll owe taxes upon withdrawal.

Your 40s and 50s are important times in the retirement planning process. If you haven’t already worked with a financial advisor to help you through it, now is a good time to do so. A professional can help you calculate various scenarios and help you make wise decisions to keep you on track.

Disclosures