Key Points

• Creating a budget is a key component to determine the retirement savings needed to support your spending in retirement.

• High-interest debt can really hold you back from achieving your retirement savings goal. Pay off the high interest debt to put that money back into your savings.

• Reevaluate your insurance policies and estate planning documents to ensure your loved ones will be provided for in a time of need.

Welcome to your 40s! Whether you’re new or you’ve been here a while, you’re entering a phase where retirement is closer than ever. You spent the last two decades working to build a career, settle down or even start a family. Your financial goals have probably shifted over the last 20 years.

 Now is the perfect time to re-evaluate your financial plan to ensure it’s going to meet your retirement goals.

 First, Review Your Budget

 Very few of us like to sit down to create a budget; however, having a budget is the most effective way to stay in tune with your monthly spending. This is necessary to determine the income you’ll need to retire comfortably.

 According to The Retirement Industry Trust Association, “As a general rule, you’ll need about 70-80% of your pre-retirement income to maintain a similar standard of living in retirement and cover your expenses.” Only once you understand your annual spending, can you focus on building the retirement balances needed to generate that income. You may be one of the 50 million people who will depend on social security or have the benefit of an employer’s pension plan. Make sure to consider that income when determining the savings balances needed to support your lifestyle.

If the majority of your income sources will be taxable in retirement, consider building up your non-retirement accounts to reduce some of that tax burden. A Roth IRA is a great addition to your portfolio and can avoid ordinary income taxes when distributions are made properly. If you find you’re behind schedule in reaching your retirement savings goal, making a few spending adjustments now can put you back on track to build the financial wealth you need to retire comfortably.

 Second, Reduce Debt and Increase Savings

As you review your budget and spending, evaluate your flexible expenses to find where you can cut back. Cancel unnecessary subscriptions, shop for lower rates on utilities, cell phone and internet packages, and review your home and auto insurance for a packaged rate or a deductible increase to lower the premium. Every little bit you save in expenses will benefit you — when it’s directed back towards your savings accounts.

 If you plan to travel in your retirement years, opening a rewards credit card can be a great financial resource to accumulate travel and cash rewards. Just be aware of the annual fees and expiration dates. Make sure to pay off the card each month.

 On the other hand, if you’re carrying high-interest debt, such as credit cards, focus on paying those off before retirement. According to Ask Experian, in 2020, the average credit card debt for 40–55-year-olds was $7,155, the highest average balance by generation. Any high-interest debt will really inhibit your savings growth. Think about how those payments can work for you if they were invested each month. There are several great strategies to pay off debt. Choose one that will best motivate you.

 Make sure you’re maximizing your contributions to your employer’s savings plan by contributing at least the level of your employer’s matching contribution. At your next pay raise, consider increasing your contribution, rather than increasing your spending. If you’re already making the maximum contribution to your employer’s savings plan, a Contributory or Roth IRA can also make a great addition to your portfolio

 Third, Review Insurance Needs and Estate Planning Documents

If you have loved ones who depend on your income, it’s important to ensure your life, disability, and long-term care insurance policies are in place to protect them and your assets from an unexpected loss. Making a change is ideal before your next milestone at 45 or 50 when the premiums rise significantly. These types of policies have several nuances, so it’s important to review them carefully.

 Long-term care specifically has a wide range of costs, so look for a policy that fits your specific needs. Statista reported, “in 2020, the annual average cost for long-term care in the United States ranged from 19,240 to 105,850 U.S. dollars, depending on the type of service.” Nursing home fees fell into the most expensive care, while adult health care as the lease expensive.

 Your current beneficiaries, as well as the designated trustees and executors in your estate plan are also really important to review. Are the named persons still the appropriate choice to control your assets or care for your children if you cannot? Have you purchased property out of your resident state or altered how you would like to leave your legacy? If you’ve answered yes to any of these questions, you may need to consider an amendment to your estate plan.

 Your 40s are a great time to take measure of how far your finances have come and look ahead to where you want your finances to be over the next 20 years. There are still plenty of earning years left to build your retirement nest egg. It’s essential to create a financial plan that you can stick to. At Capstone Financial Advisors, Inc. we can assist in all aspects of your financial planning to help you stay on track and reach your retirement goals.

Disclosures:

This article is not a substitute for personalized advice from Capstone and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed by other businesses and activities of Capstone. Descriptions of Capstone’s process and strategies are based on general practice, and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.