I’m not in my 40s quite yet, but as I quickly approach the next decade (a bit faster than I want), I’ve been thinking about what important financial decisions will need to be made in the coming years. For many Americans, our 40s can be a time where earning potential is very high, but it’s also an important time to make sure the proper retirement moves are being made.
Personal finance information is often just that — personal — in the sense that not everything is applicable to your specific financial situation. But here are two key ideas that you should be following in your 40s to help you transition into the next stage of life.
1. Stay focused on retirement contributions (or start today)
To help give you an idea where other Americans are with their retirement, take a look at the chart below. It’s from the Economic Policy Institute (EPI) and it shows the median retirement amount for Americans between 1989 and 2013 (which is the latest data available).
IMAGE SOURCE: ECONOMIC POLICY INSTITUTE.
The red line shows that Americans between ages 44 and 49 had a median retirement account savings of just $6,200 in 2013. News flash: That’s not good. And according to EPI, “For most age groups, median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium.”
Maybe your retirement is all set to go and you’ve been socking away money for decades. But this set of data suggests that’s probably not the case. Which means that right now (like literally, when you finish this article) you need to set up a plan for putting more money away for retirement. You can do this through an employer-provided 401(k) or by setting up your own individual retirement account (IRA). The important part is to start now, if you haven’t already, and continue increasing your contributions to the account if you’re able.
2. Kick debt to the curb
According to the latest data from Bureau of Labor Statistics, American workers have some of their highest-earning years between the ages of 35 and 44 (for women) and second highest-earning years between 45 and 54 (for men). In short, your 40s are some of the best times to reach your earnings potential.
|Age||Average Weekly Earnings for Women||Average Weekly Earnings for Men|
|Total, 16 years and older||$749||$915|
|16 to 24||486||512|
|25 to 34||705||794|
|35 to 44||839||1,007|
|45 to 54||836||1,075|
|55 to 64||812||1,102|
|65 and older||749||992|
DATA SOURCE: BUREAU OF LABOR STATISTICS.