Financial strategies for your 40s

You’re in your 40s, which means you’re probably busier than ever. You are working hard, may be raising a family and likely have a lot of competing interests for your time and money. You might be thriving, earning more money and moving up the professional ladder. Your expenses may also be higher. At this stage, it’s important to balance the needs you have now with saving to help secure your future.

If you have children, they may be getting closer to college age so you’ll want to make sure you’re ready if you’re planning to help pay for it. Your parents, on the other hand, may be getting older. If their health deteriorates, they may need you to help to take care of them or even pay for some of their caregiving needs, which can have a serious impact on your own finances and retirement readiness. And you likely have your own goals, such as homeownership or home renovations, paying off debt or finally taking a memorable vacation.

Covering all the bases can be daunting, but we’ve put together some suggestions to help. While we’ve organized the Financial Strategies section of this site by age, keep in mind that everyone moves through life stages at a different pace. Depending on where you are, you may want to check out some of the suggestions for other age groups.

Taking care of your financial needs

When planning for retirement, think about your ideal retirement lifestyle and then be realistic about what it might cost. Once you have a financial goal in mind, you can work with your financial advisor to help develop a strategy to get there.

Evaluate income and expenses

Using a budget to identify where your money comes from and control where it’s going will help ensure you’re living a lifestyle you can afford and are on track to meet your savings goals. Understanding your current spending needs can also help you better estimate your spending needs in retirement.

Once you’ve completed or updated your budget, be conscientious about what you do with any money that remains after covering your expenses. If you already have a rainy-day fund, make sure it’s large enough to cover three to six months of expenses, which are probably quite a bit higher in your 40s than those when you were younger. You'll also want to make sure you're saving enough to meet your financial goals such as retirement, paying for your children’s education or helping provide health care for aging parents. 

Prepare for the unexpected

Make sure your strategy includes contingency plans that prepare you for the unexpected. This should include an emergency fund that can help protect against unexpected expenses and potential dips in income that could otherwise throw you off track. You may also want to consider what would happen if you were suddenly unable to provide for yourself? Life and disability insurance can provide protection. Your financial advisor can discuss strategies and options with you so you can protect yourself and your family.

Max out your retirement contributions

Retirement may still seem like a lifetime away — but it’s closer than you think. While you may have a good 20 to 25 years of work left, the cost of living can double during that time, assuming a 3% inflation rate. During periods of high inflation, such as the U.S. faced in the 1970s and again in 2021 – 2023, it can increase even more sharply.

Now that your income is likely higher, make sure you’re taking full advantage of it. While everyone's needs are different, a good general rule of thumb is to save 10% to 15% of your income for retirement. You may even want to max out your annual contributions. The IRS is allowing up to $23,000 in contributions to 401(k) plans in 2024. You can also contribute to an IRA for you or your spouse as long as you have taxable compensation, subject to annual limits.

If you have a plan through your employer, you can generally contribute to both your employer plan as well as an IRA, but the portion of your IRA contribution that’s deductible from your income taxes may be affected by participation in your workplace plan. There may also be other products and strategies that will allow you to contribute additional amounts on a tax-deferred basis.

Develop a smart investment strategy

Investing is a pivotal piece of your financial strategy. When developing your investment strategy, you'll want to consider your goals, when you'll need to access your money and your comfort with risk. 

For short-term goals, such as saving for your dream vacation, you'll generally want to hold cash and short-term fixed-income investments. For long-term goals, such as retirement, you have the leeway to invest more in high-growth securities — which often carry a higher risk of loss but can also offer higher returns. 

As your time horizon shortens, you’ll want to begin adjusting the balance between higher-growth and lower-growth assets since there will be progressively less time to rebuild any investment money you lose. An Edward Jones financial advisor can help you decide on the balance between risk and growth that’s right for you.

Taking care of your kids

Between childcare, food, clothing and shelter, it takes a lot to raise a child to age 18. But, after that, you may want your child to attend college, which comes with the many expenses associated with it.

If you plan to pay for some or all your kids’ college education, you’ll need to be prepared for the costs. Your options include:

  1. Pursuing scholarships, or grants, which can be competitive and needs-based
  2. Taking out loans, which charge interest
  3. Using current income and money you've saved

Scholarships and grants aren’t guaranteed, loans charge interest, and most people don’t have enough income to cover the total cost of college. Saving now likely means the less you (or your student) will need to borrow later. 

A 529 savings plan is a good option for setting aside cash for education, since it offers a tax break when used for qualified education expenses1. These plans can take contributions from anyone and are under the control of the account owner, not the beneficiary. So if the intended beneficiary opts not to go to college, the account owner can usually choose another person. If you have young children, one approach many families adopt is to invest a portion of the money that was previously dedicated to day care expenses into a college savings plan. Since you’re accustomed to not having that money, it’s less likely to be missed.

Talk to your Edward Jones financial advisor about what works best for you and your family.

Fine-tuning plans for your children’s educational needs as they enter their teens offers an excellent opportunity to teach them good financial habits. What they learn now can help them understand the value of saving and investing early. It can also prevent costly mistakes later, such as taking out large loans for degrees that may not yield jobs with high enough salaries for them to repay what they borrow.

Taking care of your parents

As your parents get older, you may need to care for them. If your parents are healthy and active, now is a great time to sit down with them and have some important conversations about this. For example, if you were suddenly put in charge of making decisions for them, would you know who to contact? Their doctors, lawyers, financial advisors — these are all good names to keep handy. 

What about their insurance policies, bills and other important papers, such as a will or health care directive? If your parents come to you someday for help, you’ll want to have this information on file.

If there is a possibility you or your spouse will have to leave the workforce to care for an aging parent, make sure you factor that into your retirement planning. You’ll also want to plan for any financial assistance they need.

The bottom line

You can make your money count for today and work toward tomorrow. Your financial advisor can help you create a strategy that helps you get where you want to be. Contact your Edward Jones financial advisor today.

Meagan Dow

Meagan Dow is a Senior Strategist on the Client Needs Research team at Edward Jones. The Client Needs Research team develops and communicates advice and guidance for client needs, including retirement, education, preparing for the unexpected and leaving a legacy. Meagan has nearly 15 years of financial services and investment experience. She is a contributor to the Edward Jones Perspective newsletter and has been quoted in various publications.

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Important information:

1529 Savings Plan: Withdrawals used for expenses other than qualified education expenses may be subject to federal and state taxes as well as an additional 10% penalty. Contributions are tax-deductible in certain states for residents who participate in their own state’s plan. Because tax issues for 529 plans can be complex, please consult your tax advisor.