Those mid-life years can be crazy. Between growing your career, raising a family, helping your aging parents, paying off debt and saving for college, all while trying to just enjoy life while you’re still young, it can be easy to put off making moves to ensure you’ll be able to retire. But trust us. Eventually, you’ll want to.
Here are three key money moves to make in your 40’s and 50’s that will keep your options open in your 60’s and beyond, as long as you can keep the bigger picture in mind.
1. Prioritizing maxing your retirement funds before upsizing to a bigger home.
A common mistake we see folks make once money starts flowing more freely in their careers is to immediately upsize to the biggest and best home they can afford. It makes sense to want that, especially if you have a growing family and/or you’ve been squeezed into a less than desirable living space for too long.
However, you want to be sure that you’re not just keeping yourself in that same cycle where housing expenses are maxed out at your current earnings level, which can leave you with little wiggle room to work on other goals like retirement, college savings or even paying off your own student loans.
If you’re upsizing your home to accommodate a growing family or just want a nicer place to live, don’t just take it as a given that increased income should equal increased square footage and the latest kitchen remodel. Yes, it’s important to live in a good neighborhood and you want to have space for everyone to feel comfortable but maxing out on housing when you’re not maxing out on retirement savings is a huge long-term mistake.
2. Carrying adequate disability insurance to offset the need for excessive amounts of cash.
Most people think of health and life insurance when the topic comes up, but arguably the most important insurance you’ll need in your 40’s and 50’s is disability insurance. According to the Council for Disability Income Awareness, the average long-term disability claim is almost 3 years, which is far more than you’ll want to keep in a cash emergency fund.
Doing so is likely to have you missing out on investing opportunities; adequate disability coverage offsets the need to keep excess cash on hand and allows you to leverage the long-term growth of stock market investments without placing undue risk on your lifestyle or future retirement savings should a disability occur.
The least-fun part of your Prosperity Plan, at least according to most of our clients, is the insurance discussion, but it could arguably be the most important if something happens. It’s a good idea to re-check your insurance needs anytime you have a change in income, career, family size or marital status.
3. Understanding that you can’t (& don’t need to) time the market for investing success.
Think about the last time you contributed to an investment account outside of your 401k or 403b – one where you had to make sure the funds got invested like a 529 plan or your Roth IRA. Were you tempted to let the money sit in cash while you waited for a market dip?
Waiting to invest due to fears of a short-term loss ignores one of the key fundamentals of investing: time IN the market is more important than timING the market. Much research has shown that market timing doesn’t work and more often, you just end up missing out on growth and dividend opportunities in the long run.
The best way to take advantage of the long-term growth of the stock market is to just get in. Pick your investments according to your timeline and risk tolerance, pull the trigger, and then let them ride.
Or let us do it for you – we can take a methodical approach that takes advantage of dollar-cost averaging if that feels better to you, but one of the benefits of working with a financial advisor is that we take the emotions out of it so that you can stick to your goals through the tough times and the good times.
Remember, the little things add up, and that goes both ways in accumulating debt and savings. That’s why it’s not impossible to catch up if you’re behind in saving for retirement in your 40’s or 50’s, but the longer you put it off, the more severely your options will be limited in retirement.
By following these 3 moves, among others that we might suggest during the Prosper for Individuals planning process, you can help ensure that your life today and in the future is in line with your bigger picture goals.
We’d love to talk with you!
If you’re not a client of The Prosperity People but you’re wondering what money moves you can take to ensure a long and prosperous retirement, we’d love to talk with you. Reach out today to schedule a chat so we can start you on your path to prosperity.