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Financial Planning as You Approach Retirement

It’s easy to put off planning for the future when the present is so demanding.

Unlike in your 20s and 30s when your retirement seemed so far away, your 40s are when your financial responsibilities become clearer. You are probably earning more income than ever, so sound financial, and tax, planning is more important than ever.

Perhaps you have increased expenses as a result of homeownership. If you have kids, now may also be the time that you’re thinking about or preparing to pay for college tuition.

These are critical years that require your attention and thoughtful planning.

These are very rewarding years of life. Consider your options carefully. The following can help you think about the goals you might want to prepare for.

1. Pay off high-interest debt.

The average variable-rate credit card charges a double digit interest rate so paying these off can boost your financial security more than almost any other financial move you make related to savings or investing. Student loans are another debt that can carry high rates. Even federally subsidized loans taken out back in the 90's can carry rates exceeding 8%. 

2. Check you’re retirement saving strategy.

If you've had several jobs—which means you might have several retirement or 401(k) plans—now is a good time to organize and check how all of your investments have performed. It's also a good time to consider consolidating these accounts. Leaving 401(k) accounts with previous employees is generally never a good practice. Now is the time to make sure all of your accounts are working together, and to make sure you are saving enough to put you on track to the retirement of your dreams.

3. Optimize your tax plan.

In your 40s, you’re likely to be earning more than earlier in your career–which may put you in a higher tax bracket. Review your tax situation to help make sure you are keeping as much of your hard-earned income as you can. One big step you can take now to optimize your retirement cash flow options is to invest in a Roth 401(k) or IRA. Contributions are taxed at the the time of deposit, but all growth is tax free. With some time on your side during this phase of life, you have the ability to generate significant amounts of tax free retirement income that can even help keep keep tax rates down on other income in retirement.

Another great tax savings strategy is to consider a Health Savings Account (HSA). HSAs can be powerful part of your overall tax strategy. While the purpose of the savings is for health-care, you get the benefit of true tax free funds. The money goes in tax free, it grows tax free, and comes out tax free, as long as the conditions governing the use of an HSA are met. And unlike an FSA, Flexible Spending Account, these can be left to grow - providing the benefit of compounded tax free growth.

4. If you have children, start saving for college—just don’t shortchange your retirement to do it.

If you have children, you may be already be paying for their college tuition, or at least preparing to pay for it. Many parents submit a final tuition payment only to realize that they've saved nothing for retirement—without any time left to save more. So, first things first, make sure you’re saving enough for your own retirement. Then if you have money left over, think about tax-deferred college savings plans, such as 529 plans.


Your 40s and 50s are all about taking stock of how far you’ve come, re-adjusting your priorities, and getting ready for the next phase of life.

By working on your financial goals now, you can gain reassurance that allows you to concentrate on important things like family, friends, work and the way you want to spend this exciting time of your life.


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