Buzz
Your 20s are behind you, and now you're in a new chapter of life with a spouse, children, and perhaps even a home. By now, you've ideally started saving for retirement, established a solid debt repayment strategy, and steadily increased your savings to reach your financial milestones. You're comfortable, or close to it, but it's important to stay on top of your financial journey and ensure you're not overlooking anything important. There's still plenty more to learn.
This article is the third installment in TwoCents’s ongoing series, What to Know About Money at Every Age. You can also explore our guides on what to consider before turning 20 and how to manage your finances in your 20s and 30s. Stay tuned for more advice on managing money in your 50s, 60s, and beyond.
Here’s what you should understand about your finances as you move into the latter half of your career.
Continue Investing in Your Growth
Statistically, these are your peak earning years, but that doesn’t guarantee a steady increase in your income. To stay competitive, you must keep investing in yourself and your skills to remain relevant in the job market.
If you're in your mid-30s or early 40s, your career might last another 25 to 30 years. It's crucial to think about what you want to achieve during that time and what skills you’ll need to get there.
Ask yourself: Are you surrounded by individuals who are more knowledgeable than you, from whom you can learn? Can your skills apply to different roles or industries? Are you challenging yourself to step outside your comfort zone? Do you engage in meaningful work, projects, volunteering, etc.? Do you still feel motivated at work? If your answers to many of these questions are no, don’t worry—there’s still time to make changes and reach your long-term career aspirations.
There are numerous ways to acquire additional skills, many of which are affordable. Local community colleges and universities often offer continuing education programs, and online platforms like SkillShare provide a variety of workshops.
Don’t Forget to Network
For many professionals, new career opportunities often arise more from who you know than what your cover letter says, especially as you reach mid- to late-career. It’s crucial to maintain a strong network of past colleagues and professional connections because you never know when one could offer you an opportunity.
As mentioned in an earlier part of this series, this is particularly true for women who take time off from their careers to care for children. Monica Dwyer, a Certified Financial Planner and wealth advisor, shared that many things changed during the decade she stayed at home with her children, and she wished she had stayed more connected with her professional network.
“When I returned to the workforce, I wasn’t able to return to the director-level role I had before, so I had to rebuild my career from scratch,” Dwyer explains. “I was naive enough to think I could just pick up where I left off, but no one would hire me at that level because I no longer had the necessary track record.”
“I don’t regret spending those years with my children during their most formative years,” she adds, “but I do wish I had stayed in touch with my colleagues.”
Maximize Your Investments
As your earnings increase, now is the time to aim for the maximum contributions to your retirement accounts and focus on fees, not returns. These are pivotal years in your journey toward retirement (or, simply, financial freedom)—if you haven't been investing regularly since the start of your career, it's not too late to catch up.
Consider being more aggressive with your investments, particularly in your 30s. If you're planning to retire at 65, you still have 20-30 years to grow your investments, which provides a long enough time frame to recover from any market dips (but always invest according to your risk tolerance). Those who are cautious about stocks due to past financial crises or the early-2000s dot-com bubble “may be missing out on the higher potential returns that stocks can provide over the next two to three decades,” says Kevin Ta, Senior Wealth Strategist at PNC Wealth Management. “More conservative investments, like money markets, CDs, treasuries, and bonds, may struggle to keep up with rising inflation.”
Robo-advisors such as Wealthfront and Betterment provide low-cost asset allocation advice, as does Vanguard’s Personal Advisor Service. Above all, ensure that you're investing long-term in a diverse mix of affordable options. (And don’t forget to monitor old retirement accounts.) Keep an eye on dividends as well.
When juggling financial priorities, the general advice is to borrow for college and your home, but not for retirement—so focus on yourself. This isn't incorrect, but remember that after age 50, you can make catch-up contributions to your retirement accounts (an additional $6,000 for your 401(k) this year and $1,000 more for your IRA). If possible, it might be wise to also contribute to a 529 plan or a down payment while continuing to prioritize retirement. A consultation with a financial planner can help clarify what approach is best for you and your family.
LearnVest recommends goal-oriented investing, meaning “each investment has a specific purpose or goal, allowing you to align each account with its time horizon and the risk level you are willing to take for that goal.”
Now is also a great opportunity to open a Roth IRA if you haven't already and if you’re under the income limits (and don't forget about the backdoor option). Since you contribute to a Roth post-tax, it can reduce your tax burden in retirement. You might also consider setting up a taxable investment account, which can be used to cover expenses in your early retirement years while your tax-deferred accounts (such as 401(k)s and IRAs) continue to grow.
Eliminate Your Debt
You don’t want to enter retirement burdened by debt, though an increasing number of people are. Experts recommend that you should be nearly finished paying off student loans by the end of your 30s. But if you’re not there yet, don’t stress. Reevaluate your repayment plan and make adjustments as necessary.
At the very least, avoid accumulating more debt as you approach 50, even if it means putting less toward your investments. Paying off debt should be your primary concern.
Get a Grip on Your Health Care Expenses
Don’t forget that you are your most important asset. Take care of yourself, and prioritize your health. You’re not in your twenties anymore: Make the most of “free” preventive services available every year. As I wrote here, simply following your doctor’s instructions and taking medications as prescribed can save you a lot of money in the long run.
If your workplace offers a Health Savings Account (HSA), make use of it to grow your funds in a tax-efficient manner. Contributions to HSAs are tax-deductible, the investment gains are tax-free, and withdrawals for eligible medical expenses are also tax-free. It's a win-win. However, be mindful: These accounts are linked to high-deductible health plans, which can be quite expensive. You might find that a plan with lower out-of-pocket costs and a Flexible Spending Account is a better fit for you.
Otherwise, take the time to understand the details of your insurance coverage:
Deductible: The amount you must pay out-of-pocket before your insurance starts to cover the costs (preventive services are exempt from this charge). In 2018, the average deductible for HDHPs was $4,133 for family coverage and $2,166 for single coverage, while PPOs had an average deductible of $2,198 for families and $1,012 for individuals.
Copay/Coinsurance: The portion of the costs you still pay after meeting your deductible. A copay is a set fee (e.g., $10 for a doctor’s visit), while coinsurance is a percentage of the service cost.
Out-of-Pocket Maximum: The total amount you must pay for in-network services before your insurance covers the rest.
Be mindful of both in-network and out-of-network providers and facilities. In some situations, especially in the emergency room, you may not have control over seeing an out-of-network doctor (thanks to the quirks of the American health care system!). But for non-emergency procedures and surgeries, make sure your doctor and the hospital or clinic are within your insurance network, advises NerdWallet:
Visit your insurer’s online physician locator or directory tool, input your plan details, and search for your doctor. This will show whether the physician you want to see not only accepts your insurance but also belongs to your plan’s network.
Double-check your findings by calling your insurance company to confirm the physician’s name and location match what they have on file. Sometimes, providers work from multiple locations, some of which may not be part of the same network, or two physicians may have similar names.
When booking your appointment, make sure the office participates in your plan and does more than just “accept” your insurance. Be sure to ask directly: “Does every provider I might see at your facility participate in this insurance plan?”
If you're not covered by employer-sponsored insurance and are exploring options on the individual market, “take a close look at the deductibles, co-pays, services offered, any restrictions on the doctors you can see, and what extra benefits the plans provide,” says Lisa Hayes, Senior Wealth Strategist at PNC Wealth Management. “Depending on your income, you might be eligible for a subsidy from a state plan, but only if you select” the silver-level plan.”
And don’t forget to plan your visits wisely.
Teach Your Children the Importance of Money
As you may have realized, life often requires sacrifices. Some things will inevitably take precedence over others, and while you may not always explain the reasons behind your decisions to your kids, it can be a great opportunity to begin teaching them the value of money and how to manage it responsibly. (Plus, they'll hopefully start to understand why they can't get every toy or trendy outfit they ask for at any given moment.)
Discuss Your Parents’ Financial Situation
This is one of two potentially uncomfortable financial conversations you'll need to have before it's too late. Have an honest discussion with your parents about their financial situation, including their retirement plans, health care costs, homeownership, and other important aspects of their financial future.
To make this conversation as smooth as possible, Kathleen Burns Kingsbury, a wealth psychology expert, advised me for this article that you should try to keep emotions out of the discussion while allowing your parents to maintain a sense of control.
“It’s essential to let them retain a sense of control and dignity,” she says. “Sometimes, when you bring up the conversation, your parents might feel a sense of relief, and that leads to an open dialogue.”
As I previously mentioned, here’s the advice Kingsbury offers:
First,
process your emotions
. “We often experience a wide range of feelings when it comes to our parents aging. It’s helpful to talk to a friend or counselor first. That way, by the time you talk to your parents, you’ve fully considered your approach.”
Next,
approach with compassion
. “If you’re feeling overwhelmed or scared and you don’t plan ahead, your parents may not be receptive,” she says. “Make sure to organize your thoughts and approach the situation by expressing your concerns with a desire to help.”
Finally,
allow them time and space to process
. “You might have been contemplating this for months, but for your parents, it could be a fresh idea,” she says. “Sometimes they just need some time to think it over.”
Draft a Will
It may sound morbid, but if something happens to you, your family will be thankful that you took the time to make preparations, ensuring your assets are distributed according to your wishes. The process doesn't have to be costly—websites like LegalZoom offer will creation services for less than $100.
Here are a few questions you should consider, according to Money Magazine:
Who do you want to inherit your estate?
Who would you designate as guardians for your children in case something happens to both you and their other parent?
Who would you like to take on the responsibility of carrying out your will?
If you were ever unable to manage your financial affairs, who would you trust to handle them? And in case you're unable to make medical decisions for yourself, who would you want to make those choices on your behalf?
At the very least, you and your spouse need to be aligned when it comes to finances. Make sure you're both aware of each other's income, how your bills are paid, and the status of your investment accounts. Honest communication is crucial and can make any challenges that come your way a little easier to deal with.
Consider exploring life insurance options, particularly term life insurance (rather than whole life), especially if you have children. In Get a Financial Life, personal finance expert Beth Kobliner recommends checking out direct-to-consumer firms like TIAA and Ameritas, as well as comparison sites such as Term4Sale.com.
“A common rule of thumb is to buy a policy worth seven to ten times your annual pre-tax income in case of death, but many people may require more than that,” writes Kobliner.
Relax and Enjoy Life
After tackling those difficult conversations and putting so much focus on your goals, it's time to let loose and have some fun. Not every dollar needs to be saved for a rainy day or stretched to its fullest potential. Take a trip with your loved ones, leave work early to catch your daughter's soccer game, and treat yourself to some great meals from time to time.
You might find that avoiding the “must-haves” like a fancy house or expensive car can make this easier. If a lavish wedding or a suburban mansion isn’t your style, embrace that. Focus your spending on what truly matters to you and your partner.
This could even mean taking a mini-retirement or just some time off now, instead of waiting until you're in your 60s or 70s. You've worked hard, and you’ve earned the right to enjoy your life. (For a bit of inspiration, check out this subreddit.)
And that wraps us up for this chapter of What to Know About Money at Every Age. See you in the next one.
