So, this is 40. And it's time to start thinking about your retirement.
With a decade or two left in your "main" career, you have time to get your finances in order before moving on to the next stage of your life. But first you should ask yourself: Am I financially prepared to retire?
If the answer is no, you aren't alone. Most fortysomethings are behind on their savings. Financial advisors suggest having a nest egg that equals two to four times your salary, but the Economic Policy Institute reports that the typical fortysomething has only saved $6,200.
If you're ready to start catching up or want to boost your retirement savings plan, here are five realistic things you can do to get on track.
1. Automate your savings
It's easy to put a little money away when you get a bonus or a tax refund, but if your savings are going to be serious, they need to be consistent and systematic. The easiest way to do that is to put your savings on autopilot.
Your employer could also help! Justin Halverson, a retirement income-certified professional based in Minneapolis, recommends joining your employer retirement plan and setting up an automatic withdrawal from your paycheck each pay period that will deposit in your retirement account.
In 2019, singles with a modified adjusted gross income less than $137,000, and married couples earning less than $203,000, can contribute to an IRA. The total annual IRA contribution limit for 2019 is $6,000 for any taxpayer younger than age 50, according to the IRS.
"If you're not fortunate enough to have a 401k or another workplace retirement plan, open a ROTH IRA or a SEP IRA and start putting away money on your own," Halverson suggests.
A SEP IRA is a traditional IRA, or individual retirement account, for self-employed individuals, small business owners and freelancers.
A ROTH IRA is a special retirement account that you fund with your post-tax income.
The only thing worse than spending everything you earn is spending more than you make and going into debt.
2. Take control of your budget
Unfortunately, most Americans don't follow a budget, which can lead to overspending, under-saving and debt. Halverson suggests developing a budget to keep from buying things that you can't afford. "The only thing worse than spending everything you earn is spending more than you make and going into debt," he says.
The key, he emphasizes, is recognizing your spending patterns. This could be anything like how frequently you splurge on travel or electronic gadgets, or how often you eat out at restaurants. Understanding how much you're spending and where your money is going is the first step to developing a clear budgeting and savings strategy.
Once you understand how you spend, you can prioritize your spending and set an appropriate limit for each category—such as for travel or entertainment—to help you reach your savings goals.
3. Put a limit on expenses for kids, especially those in college
Many parents neglect their retirement savings in order to fund their children's college education—a strategy that can endanger their own retirement, says Spencer Betts, a Certified Financial Planner in Lexington, Mass. To prepare for college expenses, begin your budgeting when your children begin high school, if not earlier. Calculate what you can afford to pay, discuss your economic situation with your kids, and encourage them to aggressively seek scholarships and grants.
Betts also suggests that strict budgeting for your kids can begin much earlier. "Your kids don't need to be in every after school program available," he says. "You don't need to buy them the latest and greatest of everything." Being careful with your spending when they're young can translate to more money—and options—when they get older.
4. Pay off your student loan debt
Many people think that student loan debt only burdens millennials, but the Federal Reserve reports that 6.8 million Americans in their 40s are also grappling with it. And once you hit your 40s, those payments come with a higher cost, as they start to interfere with your retirement savings.
If you're still repaying your college loans, now is a great time to prioritize eliminating them once and for all. Consider refinancing any high-cost loans, investigate loan forgiveness options or simply attack your debt by paying well more than the minimum payment for at least a year or two. Doing this can put you on the fast track to better financial health—and free up additional cash for retirement savings.
5. Define your vision of retirement
Even though the "usual" age for retirement is around age 65, there's no rule that says that's when you have to stop working. When you're in your 40s, you may dream of retiring early—perhaps in your mid- or late 50s—or maybe you love your job and want to keep working forever. Regardless, this is the time to start thinking about what retirement means for you.
Would you like to spend your time traveling? Volunteering? Learning a new language? Starting a new career? Regardless, now is the time to start talking to a financial advisor and figuring out how much your dreams will cost and how much you'll need to save in order to make them come true.
In many ways, your 40s are a crossroads—a time to resolve the money issues of your youth and prepare for the future that awaits after your current career. By shoring up your finances and establishing some consistent mechanisms for saving for the future, you can prepare yourself for the next stage—while you're still in your highest-earning years of your professional life!