Key Takeaways

  1. Your 40’s are a critical decade and you need to make your personal finances, and your plan for retirement a priority
  2. It’s a period filled with change, reflection, and big opportunities to make smart financial decisions
  3. It’s your most demanding decade — financial planning is crucial to keeping you on track and to putting you in control
  4. Your plan should look at all aspects of your life — career, taxes, retirement, and your future financial health and well-being
  5. With ongoing planning, your 40s can be your best decade yet and a catalyst for living well in the future

Your 40s represent the busiest decade of your life,  filled with challenges, opportunities, and financial decisions that can affect you and your family for years to come. You have more responsibility at work, family life is getting more expensive (especially if you have kids), and retirement feels closer every day.

You’re also entering your highest-earning years, approaching your greatest career opportunities, or maybe you’re ready to make a change and start a new job. You have your best professional years ahead of you, so it’s essential to have an evolving financial plan that can help you navigate this decade confidently.

Here’s how to make your 40s your best decade yet and prepare for the future.

Two Simple Truths About Your 40s

Two things everyone in their 40s needs to know: time is still on your side, but not for long, and your financial health needs to be a priority.

You still have time to save and invest more. You’re at the tipping point between being able to save more and needing to spend less. Once you hit your 50s, spending less and adjusting your lifestyle is critical. In your 40s, you can let the power of compounding investment returns work for you.

For example:

Let’s say the goal is to save $1,000,000 by 65. Assume all investments achieve a 7% hypothetical return (no guarantees of course). Taxes are not included in this calculation.

Start saving when you’re 40 and you’ll need to save about $15,000 each year from 40 to 65.

Wait until 50 and you’ll have to save more than twice as much: almost $37,500 per year.

There are always things that can get in the way of saving. But as the flight attendants say, put your oxygen mask on first. That means that while there are always conflicting priorities like paying for college versus saving for retirement you need to make your financial security a priority. Your financial health will give your children peace of mind down the road.

Making your personal finances a priority can be a challenge. With the right mindset, this change can be an opportunity for personal growth.

Our Relationships With Life, and Money, Start to Mature

Your career is advancing. Your personal relationships are evolving and the kids are growing up. As everything around you is “maturing,” it’s important to make time to maintain healthy relationships.

This is when many of us are thinking about the next chapter for ourselves and our families. Make time to think about what matters most, what you want in your next chapter, and how your financial decisions can support those wants. It’s a journey, not a destination, so give yourself grace as you navigate life’s twists and turns.

And if you’re in a relationship, you need to include your partner in your decisions. Checking in periodically about money decisions can keep your personal and financial relationships healthier.

The Sandwich Years - Greater Demands and Greater Planning Needs

The sandwich years, when you’re responsible for growing kids and aging parents, are filled with trade-offs and questions. What kind of care makes sense for the kids? Put more towards college or retirement? What about Mom and Dad?

Let’s start with family life. The “toys” for your children become more expensive cell phones, laptops, cars. College may be on the horizon or already here. Vacations, car loans, and the mortgage all add up. You need to manage your budget and prepare for the unexpected so you can invest for your children’s education and your future.

As your parents start to get older you’re thinking about their physical and financial health. Financial planning for your parents will not only help them live well in retirement, but it can protect your family from the costs of their care. Now is the time to start having those conversations.

Your Career, Your Future, and Your Financial Health

Your peak earning years mean peak expenses and peak taxes. And peak responsibility and stress. Smart financial planning can create clarity around money decisions, reduce stress, and allow you to focus on other facets of life, such as family, health, and personal enjoyment.

As your career evolves, your plan for taxes needs to evolve so you keep more of what you make. Whether it’s stock compensation, lost tax credits (as your kids get older), tax-smart investment decisions, a new home, or even charitable giving, you need to look at all facets of your plan to minimize taxes today while keeping an eye on how to create tax-efficient income in retirement.

Now is the time to make your financial independence a priority no matter where you are with your savings. There are three things you need to consider:

  1. As you make more money, save your newfound income first and then spend what is left. This is paying (or investing in) your future self first. It’s the best way to avoid runaway lifestyle expenses that can eat into your ability to save.
  2. Start investing in different types of accounts that are taxed differently. Your 401(k) should be the foundation during your highest-earning years, but you should invest in a Roth IRA and a taxable investment account as well.
  3. Now may be a great time to switch to the health plan that allows you to contribute to a health savings account (HSA). It’s a tax-free account that you can carry over into retirement and use for healthcare-related expenses.

With the Right Planning, Your 40s Can Be Your Favorite Decade

Your 40s are filled with challenges, opportunities, and big financial decisions. “Winging it” isn’t an option. You need a personalized and evolving financial plan that looks at all areas of your life to help you navigate decisions, big and small, with confidence.

If you’re ready to talk about how your biggest decade yet can be the catalyst to the life you want, schedule a free, introductory call with a CFP® Professional at Facet Wealth today.

Facet Wealth is an SEC Registered Investment Advisor headquartered in Baltimore, Maryland. This is not an offer to sell securities or the solicitation of an offer to purchase securities. This is not investment, financial, legal, or tax advice. Past performance is not indicative of future results.