in January, Gay started earning $40,000 as a registered nurse. She also does part-time work at another hospital that should bring in an additional $14,000 a year. Gay is enthusiastically contributing 5% of her salary to the 403(b) on her job, and David contributes 5% of his salary to his retirement plan at work. Eventually, the Highs hope to place all of their pension money into savings.
With the increase in income from their new jobs, the Highs are tackling their $10,000 in credit card and other debt. To speed up the process, they are considering refinancing their mortgage, which is at 8%, but their less-than-stellar credit has been a roadblock. They’re even considering pulling their sons out of private school, which costs them $800 a month on top of the $120 to $170 they spend on childcare each week.
“We still have a lot of bills, but a big load has lifted, and we can see the light at the end of the tunnel,” says Gay. “We don’t want to grow old and have our children need to take care of us. We want to make sure our children go to college. David is one of 13 children, and they all went to college. We want the same for our children.”
Finances in your 40s
The 40s can be a time of financial urgency for many. People may be dealing with lingering debt, taking care of aging parents, putting children through college, and worrying about meeting individual financial goals. To help the High family and others like them navigate through this critical time before retirement, Pierre Dunagan, president of The Dunagan Group in Chicago, offers these suggestions:
Eliminate debt. “Keep an eye on debt in your 40s,” cautions Dunagan, who advocates taking aggressive action. “Debt can be crippling at a time when you should be really focusing on your future.” With the Highs’ higher-paying jobs and Gay’s income from her part-time job, Dunagan calculates that they have $2,500 in additional monthly income. He recommends they apply $2,000 a month to attack their $10,000 debt.
Build an emergency fund. Typically, you’ll need three to six months of salary to handle possible mishaps. The Highs can afford to save $500 per month toward emergency savings.
Maximize employer savings plans. Employer-sponsored pre-tax savings vehicles offer great opportunities to save for retirement. Dunagan says the Highs should both increase their retirement plan contributions at work from 5% to 10%.
Reassess priorities. Personal and family goals may need to be adjusted to make room for saving for retirement and other important concerns. The Highs may need to redirect the $800 per month they pay for their children’s private school education and invest it toward their college education.
Re-evaluate your retirement plan. You may have $100,000 to $200,000 or so saved for retirement by now, so it’s important to track investments more closely. “See how your assets are allocated and whether it’s time to make course corrections and adjustments,” says Dunagan, “particularly if you haven’t touched your portfolio in a while.”
Adjust life insurance