Updated: 10/24/2011 12:22 PM ET|
Money in your 40s: It's make or break
The time for mistakes is over. If you haven't begun to build wealth, to control debt, to look toward retirement, then now is the time.
In your 40s, there's one figure you need to keep in mind: $1,200.
That's approximately the average monthly Social Security benefit received by retired American workers. Those collecting based on a spouse's earnings history receive an average monthly benefit of about $600.
So if you're a married couple and can get by on $21,000 or so a year, you may not need to worry about saving much for retirement. For everybody else, though, retirement savings need to be a priority.
It should have been a priority all along, of course, but the 40s is a crucial decade for building wealth. It's likely that your income is higher and your net worth is expanding, but your money may not seem to go far because you're grappling with such big expenses: homeownership, your children and their educations, paying down debt.
Gauge your progress
You have less time to recover from missteps, though, so it's important to get your money right. Here's the snapshot of the typical 40-something's finances:
- Incomes and wealth are up. The median income for 40-something households, more than $60,000, is about 11% higher than for 30-something households, according to the Federal Reserve's most recent Survey of Consumer Finances. Net worth is dramatically higher for the older group: a median of $133,100 versus $51,200 for 30-somethings. More than 70% of 40-something households own their own homes, compared with 64% of those in their 30s.
- Credit card balances are ticking up. A majority of people in their 40s carry credit card debt, and the median balance is $3,800, sharply higher than the $3,000 carried by households in their 30s. The percentage carrying big balances is up as well: 14% of people in their 40s have more than $10,000 in credit card debt, compared with 6.4% of people in their 20s and 12% of people in their 30s.
- Yet fewer are falling behind. Higher incomes and more experience managing money may explain why only 6.2% of 40-somethings are 60 days or more late on a bill, compared with 9% of those in their 30s. Negative net worth is more of an anomaly as well, with just 6.3% of people in their 40s owing more than they own, compared with 11.5% of those in their 30s.
- More people are getting serious about retirement. The percentage of people who have workplace retirement plans or individual retirement accounts rises to 60.7% for those in their 40s, compared with 54.2% of 30-somethings. Account balances are higher as well: a median of $50,000 versus $15,300.
What to focus on now
Clearly, those retirement-plan balances are still a long way from comfortable nest eggs, which is why it's so important to take these steps:
- Make retirement savings your top goal. With all the other claims on your paychecks, it can be tempting to skimp here. But every dollar you fail to put aside now could mean $10 less in retirement income. At the very least, make sure you're taking full advantage of any company match in a workplace 401k or 403b plan.
- Pay off those credit cards. Swelling credit card balances -- or really, credit card balances of any amount -- are a sign of trouble. If your balances are so big you can't pay them off within a few years, consider talking to a legitimate credit counselor (one affiliated with the National Foundation for Credit Counseling) and with a bankruptcy attorney about your options.
- Smart college strategies. Parents want to give their kids a good start in life, but don't gut your own future while you're trying to ensure theirs. Be wary of taking on more debt than you can easily repay, and consider lower-cost alternatives if paying or saving for college means stinting your own retirement savings.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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I'll be 41 this month, and have 2 yrs. and 11 months to go on my house. It is not extravagant, but it is valued at 80K easy, and the land, about 25K. I have about 38K in retirement, and 25K in a 403b. It was not easy, and I earn about 47K a year. I have three kids, two grand kids and one son and daughter in law, that I help support while they finish school. Every year, at least once, I meet with my financial advisor, whom I do not pay, he earns his living through the companies he represents, and I make sure my $ is safe, and has at least a guaranteed 3% return. Needless to say, my advisor is an honest man. I have taught my kids about saving money since they were old enough to drop coins into a piggy bank, and they are all aware of how I save monthly for my retirement. I will not be rich, but I will live at ease, and if I want my kids to have the same opportunity, it has to start while they are young, and with my help. I read this article, and printed it for my oldest daughter who is in her twenties. I found the article sound, and its suggestions well thought out. It does not say that what is suggested is easy, or that it is possible for everyone, but I have read other articles that together with this one lay out a sound method of living at ease, and within your means, at every stage of your life.
Lisa states: "More than 70% of 40-something households own their own homes, compared with 64% of those in their 30s."
When it is stated as "owns a home" does she mean the house is paid off or they have a mortgage?
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