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Liz Pulliam Weston

The Basics

Money in your 40s: It's make or break

The time for mistakes is over. If you haven't begun to build wealth, to control debt, to look toward retirement, then now is the time.

By Liz Pulliam Weston
MSN Money

In your 40s, there's one figure you need to keep in mind: $1,157.50.

That's the average monthly Social Security benefit received by retired workers as of April 2009. Those collecting based on a spouse's earnings history received an average monthly benefit of $570.50.

So if you're a married couple and can get by on $20,000 or so a year, you may not need to worry about saving much for retirement. For everybody else, though, retirement savings need to be a priority.

It should have been a priority all along, of course, but the 40s is a crucial decade for building wealth. It's likely that your income is higher and your net worth is expanding, but your money may not seem to go far because you're grappling with such big expenses: homeownership, your children and their educations, paying down debt.

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Gauge your progress

You have less time to recover from missteps, though, so it's important to get your money right. Here's the snapshot of the typical 40-something's finances:

  • Incomes and wealth are up. The median income for 40-something households, more than $60,000, is about 11% higher than for 30-something households, according to the Federal Reserve's latest Survey of Consumer Finances. Net worth is dramatically higher for the older group: a median of $133,100 versus $51,200 for 30-somethings. More than 70% of 40-something households own their own homes, compared with 64% of those in their 30s.

  • Credit card balances are ticking up. A majority of people in their 40s carry credit card debt, and the median balance is $3,800, sharply higher than the $3,000 carried by households in their 30s. The percentage carrying big balances is up as well: 14% of people in their 40s have more than $10,000 in credit card debt, compared with 6.4% of people in their 20s and 12% of people in their 30s.

  • Yet fewer are falling behind. Higher incomes and more experience managing money may explain why only 6.2% of 40-somethings are 60 days or more late on a bill, compared with 9% of those in their 30s. Negative net worth is more of an anomaly as well, with just 6.3% of people in their 40s owing more than they own, compared with 11.5% of those in their 30s.

  • More people are getting serious about retirement. The percentage of people who have workplace retirement plans or individual retirement accounts rises to 60.7% for those in their 40s, compared with 54.2% of 30-somethings. Account balances are higher as well: a median of $50,000 versus $15,300.

What to focus on now

Clearly, those retirement-plan balances are still a long way from comfortable nest eggs, which is why it's so important to take these steps:

  • Make retirement savings your top goal. With all the other claims on your paychecks, it can be tempting to skimp here. But every dollar you fail to put aside now could mean $10 less in retirement income. Use MSN Money's retirement-planning calculator to figure out how much you need to save and make the sacrifices necessary to put aside that money. At the very least, make sure you're taking full advantage of any company match in a workplace 401k or 403b plan.

  • Pay off those credit cards. Swelling credit card balances -- or really, credit card balances of any amount -- are a sign of trouble. MSN Money's Decision Centers on budgeting and debt management can help you get on track. If your balances are so big you can't pay them off within a few years, consider talking to a legitimate credit counselor (one affiliated with the National Foundation for Credit Counseling) and with a bankruptcy attorney about your options.

  • Smart college strategies. Parents want to give their kids a good start in life, but don't gut your own future while you're trying to ensure theirs. Be wary of taking on more debt than you can easily repay, and consider lower-cost alternatives if paying or saving for college means stinting your own retirement savings. MSN Money's Decision Centers on cutting college costs and on saving money for college are must-reads.

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Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published June 18, 2009

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#1
Thursday, June 18, 2009 9:54:59 AM

When I compare my finances to these I can probably retire when I am 120 years oldSad  Geesh even the 20 something's are in better shape financially Crying  so I need to go to the 401Cave plan -- where I find an unoccupied cave to live out my golden years!

Thursday, June 18, 2009 10:09:56 AM

This is a good practical article and illustrates some basic fundamentals for any age group to follow.  I think the retirement calculator is a good place to start as it helps one focus on serious numbers.   I suppose the big thing everyone should keep in mind is that everyone's financial needs are going to be a bit different in the long-run.  But understanding the benefits of consistent savings / investments,  market ups & downs, realistic average returns AND  knowing how to set up realistic goals will greatly assist a person in achieving their goals or at least getting as close as possible.

Retirement planning is one thing,  it's the daily, weekly and/or monthly awareness that a person needs to develop to put the plan into action.  Most people spend more time planning a vacation than they do planning their retirement.  It really should be in reverse-order.  So don't panic,  make some adjustments and focus on the NOW and how it all makes the FUTURE.  As for the PAST,  fuggitaboutit!

 

Thursday, June 18, 2009 10:49:36 AM
Retirement planning isn't just about Accumulation!  How you set up your Distribution and Legacy phases is much more important!
Thursday, June 18, 2009 11:36:29 AM
Do not forget: there is an industry built on your money. They just squandered a great deal and want more of yours: They need you!
Thursday, June 18, 2009 11:44:14 AM

By all rights, I should be hurting as far as wealth accumulation goes. I was laid off in 2002, because of the tech wreck. I didn't get another engineering job for 5 years, and didn't get back to Silicon Valley and "high" salaries for another 1-1/2 years.

 

 The five years with no income should have decimated my networth, but I took a big risk that paid off. I refinanced my house from a relatively high interest rate to a much lower rate and took cash out. I added that cash to some I already had, and put it into the market in a diversified portfolio, and managed it on a weekly basis.

 

I made some mistakes along the way, but caught even more lucky breaks. The biggest break I've caught so far was the end of last summer. I sold all of my equities by Sept. 8, just before the bottom fell out of the market, and didn't get back into equities until the first part of this year. I figure I saved 10 to 15 years of retirement savings just by being out of the market Sept. through Dec.

 

Funny thing is, I wouldn't be so good, nor as active, at managing my money if I hadn't been laid off. I met the woman who is now my wife shortly after I was laid off.  And, I wouldn't have met her if I had still been working.

 

She got me a book on investing for my birthday. I use a little bit of it in my investing, and I found a book on Modern Portfolio Theory, which I use a lot of in investing, when I was looking at books similar to the first book. If I hadn't met her, I wouldn't have gotten the second book, much less the first, so being laid off eventually was a positive for my wealth accumulation and creation, not a negative.

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#7
Thursday, June 18, 2009 2:32:36 PM
just started my 40's and im pile driving money in stocks,and my roth ira,to me everything else ira's,bonds,457 plans are a joke. right now the stock market is a 50% off sale and as for the roth ira its the only way i know my money should be tax free when i retire,if the goverment doesnt find a loophole,because who knows how much the goverment will be taxing ira's at 65 and what your money will be worth then.get your money in the roth ira's now because sunrise 2011 the roth ira may be a thing of the past if the goverment doesnt reinstate it. good stock hunting fellow 40 ians.
Thursday, June 18, 2009 2:38:36 PM

The earlier we start putting money away the better.  you can't afford not to save at least something.  There are ways to come up with at least a couple of extra dollars.  Start saving coupons.  Get your mortgage rate lowered, if you haven't already.  Stop buying a coffee on the way to work.  Compare your home and auto insurance rates.  I'm an insurance agent and can tell you that most people pay between $25-40/month more than they have to.  Look me up and get quotes online in a few minutes.  Affordable Home & Auto Insurance.  I only sell in Michigan, but you can get quotes from other local agents in every state.  Put a plan of action together and start saving now.  Everyday puts you hundreds behind.  We don't want to work untill were 70.

Thursday, June 18, 2009 8:45:59 PM
I have saved like crazy for 20 years only to have the scoundrels on wall st. squander it away with their horrible greed.  Don't trust the investment community they are mostly liars, criminals, or just greedy fools.   Invest in yourself, buy a business you own and run, buy hard assets.  Obama is going to have to fuel inflation to lift us out of this mess, it will be a double whammy for investors.   Do yourself a favor, run don't walk away from these fools, own something you know will have value at the end of the day.
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