I turned 40 last year and, while the milestone was a little hard to swallow, I think I’m finally finding my “40’s groove”. It’s amazing how fast life happens. It seems like yesterday that I was sitting in a college dorm room with only a few dollars in my checking account thinking about whether I had enough for a takeout pizza and a six pack of cheap beer. Since those days I’ve seen my life evolve to a good place. I’m happily married (14 years tomorrow), I have a beautiful, healthy, happy 8 year old daughter and I’m employed. I’ve also arrived at that point in life where my finances are mostly on cruise control.
I have to admit I’ve found it challenging to blog about our personal finances over the last year. It doesn’t mean I’ve lost my passion about it, but it just means that things are moving along at a very boring pace. We set most of our automatic investments up years ago and have let them continue to build. Yes, we’ve made a few tweaks along the way, like starting a 529 plan for our daughter’s college expenses, but as a whole, things have been pretty steady.
I have to admit I miss posting our net worth updates and sharing our progress along the way. It’s funny. When you’re young and just starting out, it doesn’t seem like a big deal to share your financials but as your assets grow and more people that you know discover your blog, it’s inevitable that you start to pull back. I can’t remember the exact time we pulled our financial information close to the vest, but I believe it was after we crossed the $250K net worth threshold. That was quite awhile ago and we’ve achieved some pretty impressive milestones since that time. No, I’m not going to be specific, but we are very much on track to meet all of our financial goals for retirement.
Without question, the hardest part about personal finance for us now that we’re in our 40’s is staying excited about it. With everything on bi-weekly autopilot, there is very little effort needed. This brings me to the point of this post. I think the number one tip for people in their forties that have previously set their financial goals is to “stay the course”. Don’t get distracted. Don’t let boredom derail all the work you’ve put in already. This is the time to continue saving and investing. You’re in some of your prime earning years and you need to get as much of that income as possible invested for your future.
Of course, there are plenty of people that have hit their forties and realized, “Oh crap, I guess I better get started saving for our retirement!” While you’ve shot yourself in the foot a little bit because you’ve lost some critical years of compound interest, you haven’t put yourself on life support yet. For you, the number one thing you can do is get started saving NOW! You need to invest every single dollar you can. It’s not too late but you are going to have to maximize your investing with every spare dollar. You’ve lost some key saving years already so you need to make up for that lost time with increased contributions to your retirement plan. Your goal should be to invest as close to the maximum that the IRS will let you annually (currently $17,000). If that’s not possible, just put as much as your income will allow. Most importantly, set up automatic contributions to a retirement plan and learn to live without the money. Don’t trust yourself to put the money away each month. You’ll be most effective if you set things up to invest on an automatic plan.
You will probably want to dig deeper by assigning different rates of return to different pots of money-workplace savings accounts, IRAs, bank savings accounts-you have put aside for retirement. Let’s say you have $2,000 in a checking account that you never use. Your rate of return, in this case, with interest compounded monthly, will be low, maybe 1 percent. But your money is safe. Then let’s say you’ve invested in a stock mutual fund for 15 years using your retirement plan account and you get a return of 9 percent. Investments in securities can bring a higher rate of return than simple interest because prices of securities often rise and gains are compounded. Of course, security prices can fall, as we saw with stocks in 2000, 2001, and 2008. The tradeoff for aiming for higher returns is taking on more risk, including the risk of losing money. Keep this in mind in selecting rates of return for the Pre-Retirement Savings/Assets Worksheet.
Over the past several years, many employers have reduced or eliminated matching contributions. As the economy has emerged from recession, many of these companies have restored the company match to pre-recession levels. If your employer offers a match, make sure you take full advantage of it even if your company’s plan is not great. A generous match can contribute substantially to your retirement savings. In addition to a direct match on your 401k contributions, your employer may make contributions to a profit-sharing plan on your behalf.