Building wealth takes time. Your approach will depend in part on the stage of life you’re in. The way you handle your money as a 40-something is likely a bit different than the way you managed your finances in your 20s and your 30s. If retiring rich is your ultimate goal, here are three ways to work toward making that happen as you hit your midlife stride.
Consider working with a financial advisor as you make or modify an investment strategy.
1. Get Life Insurance
Saving as much money as you can in a retirement account or taxable investment account won’t do much good if your loved ones are forced to spend the money down prematurely. If you died without life insurance, your spouse or other family members would have to use your assets to cover your burial expenses or pay off debts instead of holding on to those assets for their own retirement.
Find out now: How much do I need to save for retirement?
Buying a life insurance policy can ensure that the money you’ve been setting aside for retirement can be used for its intended purpose. Term life coverage is typically the most affordable option for 40-somethings, but a whole life policy lets you build cash value. If you’re considering a whole life policy, it’s a good idea to consider how the potential return on your investment compares to the higher premium costs.
2. Develop Passive Income Streams
Boosting your income in your 40s is a smart move because you’ll have that much more money to direct towards your retirement and investment accounts. Asking for a raise or changing careers are two ways to increase your earnings, but you’ll only see a benefit for as long as you’re working. Creating passive income streams can keep the cash flowing long after you’ve retired.
Passive income streams are projects that require an initial investment of time or money but continuously pay out. For example, purchasing a rental property can yield an ongoing profit in the form of monthly rent payments from tenants. Investing in dividend stocks is another option for receiving regular payouts without much effort.
Check out our investment calculator.
The type of passive income stream you choose ultimately depends on how much time and money you can afford to put into it upfront. The greater your passive income, the less strain you’ll have to put on your nest egg when it’s time to retire.
3. Scale Down Your Spending
By the time you reach your 40s, you’re likely earning more than you ever have before. But it’s best to avoid letting those larger paychecks go to your head. While it may be tempting to upgrade to a bigger home, buy new cars or splurge on fancy vacations, this could be a good time to begin taking a step back in terms of spending.
Why? Because every dollar you can save in your 40s translates to more spending power you’ll have in retirement. Saving in your 40s is particularly important if you waited to start saving. By keeping your spending in check and saving more, you can minimize the odds of having your nest egg fall short after you retire.
Related Article: 5 Retirement Planning Moves for Late Starters
If you’re still dealing with debt at this point, it might be wise to make eliminating those payments a top priority. Refinancing your mortgage or student loans or consolidating high-interest credit card debt might help speed up the payment process so you’re spending less each month.
The Bottom Line
Once you turn 40, you might feel as though you have a lot less time left to prepare for retirement. That’s why it’s important to take action and be proactive about saving. Covering your insurance needs, streamlining your expenses and looking for alternate ways to generate income can put you on the right track for your 40s and beyond.
Tips on Investing
- Right now may be good time to start working with a financial advisor. A financial advisor can help you stay on track for retirement and make the right investment decisions for your financial situation. Finding such a professioal doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use our free Investment Return & Growth Calculator to get a quick estimate of how you investments will grow over time.
Photo credit: ©iStock.com/sanjeri, ©iStock.com/AbElena, ©iStock.com/stuartbur