The fifth decade of one's life is usually a time of financial stability. And that makes it an ideal time to really double down on saving for retirement: You still have plenty of time for your savings to grow before you need them, so the more money you can dump into those accounts, the better your retirement will be.
For many people, their 40s are the time when they really start to feel strong, financially speaking. At this point, most people are starting to hit a high point in their careers and are making more money than ever before. The financial hiccups that come with starting a family are behind them. True, expenses such as college tuition may loom ahead, but many 40-somethings can work these expenses into their budgets without too much difficulty. That means average workers in their 40s have the opportunity to save far more for retirement than ever. And since most of us have failed to heed the "start saving early" commandment of retirement planning, this is our golden opportunity to make up for skimpy savings earlier in our careers.
If you already have a retirement plan and are following it, congratulations -- you're well ahead of your contemporaries. Even so, now is the time to review that plan and make sure nothing has changed. After all, your retirement dreams may be significantly different now than they were when you first worked out how much you'll need to save; it's a good idea to revisit those dreams, make some rough calculations about how much your revised retirement plans will cost, and decide if you need to change how much you're saving. If you don't yet have a retirement plan and a regular savings routine, this is definitely the time to get one started.
Clean up your budget
Your retirement dreams may not be the only thing that's changed. Our priorities often shift as we get older, and spending patterns that worked for us in our 20s or 30s may not make much sense to us in our 40s. For example, are you paying for memberships that you don't even use anymore? Get rid of them and put the money to good use instead. If your youthful spending habits resulted in piles of credit card debt, now is the time to pay down said debt and enjoy the freedom of not paying ridiculous amounts of interest for purchases you made years ago.
Amp up retirement savings
Dumping your high-interest debt and other drains on your finances will leave you with some extra money. Don't make the mistake of letting that money slip through your fingers. If you immediately dedicate your newly available funds to retirement savings, you'll never miss that money, because you'll never have the chance to spend in the first place. Even if you're already on track to save enough for retirement, putting in a little extra money now will protect you in case something goes wrong later -- for example, a market crash that results in a few years of pathetically low returns on your retirement savings investments.
Reassess your investments
As you come within a couple of decades of retirement, it's time to start gradually shifting your investments over to some less volatile options. That does not mean you should sell all your stocks and put everything into bonds. While a pure bond portfolio is less risky in one sense, the average return on bonds over time is far lower than the average return on stocks, making bonds a much riskier investment than stocks when you're counting on those high returns. Instead, start looking for stable, value-type stocks for your retirement portfolio and shifting your money out of the riskier, high-growth stocks that tend to be extremely volatile. Because you're starting this transition early, you can take all the time you need to find really good deals on stocks from great companies.
Protect your money
If some catastrophe arises, you may be tempted to pull money out of your retirement savings to pay for it. This is a really, really bad idea. If you pull a big wad of money out this early, your retirement income will likely be permanently reduced. Not to mention the taxes and penalties you'll have to pay for an early withdrawal from a 401(k) or IRA, which can really ding your finances in the short term. If you don't already have one, set up an emergency savings account -- it's the perfect vehicle to take care of any unexpected expenses. With your retirement savings growing apace and an emergency savings account standing by, you'll have your finances well under control.