Your 40s and 50s are a pivotal point in your financial life. These decades are full of opportunities to leverage your prime earning years for optimal savings.
They’re also when you’ll need to strategize how you’ll put those savings to use in the future. Here are five ways to help you maximize your prime earning years and make the most of your financial opportunities.
1. Write An Annual Net Worth Statement
“Many women do not understand what their net worth is,” says Danielle Tarnowski, Vice President and Wealth Advisor for Regions Private Wealth Management. “At this time of your life, you might have a big house and expensive car, which gives the impression of wealth. But the real measure of wealth is comparing what you own with what you owe.”
One easy way to calculate your net worth is to use an online net worth calculator, which allows you to compile your assets (house, retirement, savings accounts, etc.) and subtract your liabilities (mortgage, credit card debt, auto loans, etc.). The remainder is your net worth. “It’s important to calculate it annually because it changes from year to year,” Tarnowski says. “It’s an excellent idea for any woman who wants to identify how she is spending and where she can grow her savings.”
2. Eliminate Credit Card Debt
According to the 2017 State of Credit report by Experian, one of the three major credit bureaus, the average American carries a total credit card balance of $6,354. Carrying large balances can lower your credit score, which makes you less attractive to potential lenders. It also siphons money away from your savings and retirement streams.
If you have revolving credit card debt on multiple cards, start by paying off the credit card with the highest interest rate. Also, identify the trigger points that led you to make those charges in the first place. “Once you understand your behavior, it’s easier to alter it,” Tarnowski says.
3. Maximize Your Retirement Contributions
You’re in the stage of life when your child’s college tuition might be vying for your spending dollars. But it’s crucial not to divert funds from your retirement savings plan. In fact, after age 50, you should kick your retirement contributions into a higher gear.
The IRS permits employees to contribute up to $18,500 yearly into a company’s 401(k) plan and $5,500 into an individual retirement account (IRA). After you turn 50, you can contribute additional annual “catch up” payments of an extra $1,000 into an IRA and up to $6,000 extra into a 401(k), depending on your plan. By maximizing your contributions as soon as you’re eligible, you’ll give those additional funds more time to grow before you retire.
4. Consider Your Long-term Care Insurance Options
Long-term care expenses can drastically cut into retirement savings. According to the 2017 Genworth Cost of Care Survey, the national median cost for a private room in a nursing home is $8,121 a month.
Long-term care insurance can significantly reduce those costs. But, like life insurance, your ability to secure coverage depends on your health. “Around age 50, lots of aspects of our health begin to change,” Tarnowski says. “Consider applying for long-term care insurance in your early 50s, to find out if you can obtain coverage.” Insurers factor in your age as well, so your premiums will most likely be lower if you start coverage earlier.
5. Proactively Participate in Financial Planning Sessions
“Many women shy away from financial planning because they aren’t familiar with the elements or components of it,” Tarnowski says. “But whether you’re single or married, it is crucial to proactively participate in planning your financial future.”
Don’t hesitate to engage trusted professionals — such as a financial advisor, tax accountant, and attorney — to answer your questions and help you formulate and regularly re-evaluate your savings and retirement plan. “It’s important to have that relationship established before you need it in a crisis such as the passing of a spouse or loss of income,” Tarnowski says.
By leveraging the financial know-how you gain during your 40s and 50s, you’ll be equipped to launch into the next phase of your life: retirement.
