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  • Writer's pictureDavid J. Perrotto

The Ultimate Financial Cheat Sheet at 40

Many people have no gauge on where they should be at their age, nor do they have a benchmark, or a simple playbook to look at to see where their goal’s align.

Let's first make sure your retirement funds are adequate. A checkpoint at age 40 is somewhere near $250,000. According to FinancialSamurai the average 40 year old has 100,000-150,000 in their 401k. If you want that income but your savings are considerably lower, consider adjusting your retirement contributions before doing other types of investments. You want to make sure you are on goal for retirement.

Make sure you understand fee’s inside your 401k and your financial accounts.

Second, let’s talk estate planning. Get a power of attorney, which designates someone to act on your behalf in business and legal matters should you become incapacitated, and a living will, which outlines in advance what actions you’d like taken regarding your health should you no longer be able to make those decisions yourself. Also, name a health care proxy, which is a power of attorney for your health decisions. These are all extremely important, to not hold anything up for your family. A great article on USNEWS breaks down all the details of what you need to do for an estate plan. Put all your document’s in a safe, and easy to access place for your family.

Get disability insurance. If your employer doesn’t offer it and you can afford it, this insurance will provide you an income stream should you become unable to work. It’s critical, whether you’re in your, 30s, 40s, 50s or 60s. According to the Council of Disability Awareness, 1 in 4 people will become disabled before they retire. A typical female, age 35, 5’4", 125 pounds, non-smoker, who works mostly an office job, with some outdoor physical responsibilities, and who leads a healthy lifestyle has a 24% chance of becoming disabled for 3 months or longer during her working career. If this same person used tobacco and weighed 160 pounds, the risk would increase to a 41% chance of becoming disabled for 3 months or longer.

Determine job market competitiveness. Don't let your skills get out of date - consider new training if necessary. If you already have in-demand skills, think about whether you are maximizing the career opportunities for those skills. Make sure you are advancing your career. When you switch jobs, be sure to negotiate. The earlier you start earning more, the more you’ll earn over your lifetime, as those increases compound on each other. LifeHacker has an amazing article on how to negotiate your salary. According to a recent study in the Journal of Organizational Behavior, failing to negotiate on an initial job offer could mean missing out on over $600,000 in salary during a typical career. Don’t leave money you are worth on the table.

Look into getting life insurance. Some couples will opt to get life insurance right away and others might wait until they have children. Some couples in which each partner earns roughly the same amount may opt not to, but others in the same situation might buy life insurance simply to lessen the blow of the loss of that income during an already difficult time. Look into getting group term insurance, which will cover you for a period of time, through your employer, or if you feel you need extra coverage, buy your own individual term insurance. According to LIMRA’s 2012 report 70 percent of U.S. households with children under 18 would have trouble meeting everyday living expenses within a few months if a primary wage earner were to die today. 4 in 10 households with children under 18 say they would immediately have trouble meeting everyday living expenses.

Make sure you start saving for your children’s college education. Open a 529 account for them, and get in the habit of saving every month with automatic transfers, but if you have to choose, make saving for retirement a higher priority. Your children can always take out student loans, but there are no loans for retirement, and if you save for their college over your retirement, they may end up having to support you later on. According to YahooFinance, roughly 20% of children are now supporting their parents, financially. Save for yourself first, and the 529 second.

Start trying to max out your retirement contributions and be proactive with your tax planning. Meet with a licensed CPA to maximize your deductions, since this is also the time when you are likely to be paying the highest taxes. This is critically important. Retirement may only be 20 to 25 years away.

You may also want to set up a Health Savings Account, which will allow you to save on health expenses with pretax money, while also potentially using that money as an investment vehicle. Also

have three really good advantages. The first advantage is that contributions are tax-deductible, or if made through a payroll deduction, they are pretax. Second, the interest earned is tax-free. Third, account owners may make tax-free withdrawals for qualified medical expenses. Here is a great article on all the ways you can use a HSA.

Consider your own long-term care plans. This is also a good milestone to look at, “What can I do, so I’m not a burden on my family?” Investigate traditional long-term care insurance, which would provide nursing-home care, home-health care or other types of personal care for people over 65 who need supervision. Because many people find long-term care insurance expensive and they are mostly considering buying it right when they are also facing the financial challenge of retirement (usually in the 50s), many opt not to buy an expensive type of insurance that they are not certain they will use. One new option that helps alleviate those fears of not using the insurance is hybrid policies that offer life insurance with a long-term care option attached.

Lastly, make sure you have a stable, liquid emergency fund. As your income and expenses increase, remember, to increase your emergency fund.

Ideally, this financial review will find you are starting to reap some of the benefits from financial moves you began making around the time you turned 30. If not, don't worry - it's not too late to start, but it is time to get going so you have some progress to show by the time you turn 50. All of these can be achieved with the help of a licensed financial. So don’t be afraid to reach out, if you don’t have any one of these items on your check list.

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