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Retirement Planning Strategies For Your 40s

Core Facts

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Tuesday, August 7, 2012

Greater Challenges and Opportunities

The 40s represent a continuation of many of these same challenges and opportunities — but a decade later, they may be even greater. While families may be earning more money than they ever have (especially if both spouses are working) and thus have more to potentially save for retirement, their financial obligations may also be at an all-time high.

For example, they may have taken on a bigger mortgage in order to move into their dream home. They may also have teenage children, which can place greater financial demands on a family than younger kids — including, of course, a college education. And many individuals and couples in their 40s today are facing the financial challenges of what is being referred to as the “sandwich generation.”

These individuals and families are trying to balance the financial demands of maintaining their current lifestyles, saving or paying for their children’s college educations, and helping care for aging parents — all at the same time. And in the ongoing difficult economy, many are also helping support grown children who are suffering from long-term unemployment.

According to a report from the Pew Research Center, about two-thirds (68 percent) of baby boomers who have a child aged eighteen or older are supporting an adult child financially, either as the primary or secondary source of support. Meanwhile, 13 percent of baby boomers say they are raising a minor child or supporting an adult child while also providing financial support to a parent.

Setting Priorities

Given these statistics, it’s not surprising that saving for retirement can be challenging for individuals in their 40s, even if they are earning a relatively high income. The key for many is to carefully prioritize.

While all of these financial responsibilities may be important, most individuals will have to accept the fact that they can’t do it all and plan to make some compromises. For example, their children might need to attend an in-state or community college instead of an expensive private school, at least for a year or two. Or individuals and couples might have to delay their retirement by a few years, or plan on working part-time during retirement to help supplement their income.

Individuals at this life stage must be careful not to let priorities that may seem to be the most immediate and urgent carry the most weight. If children are about to graduate from high school, for example, college may seem like the immediate priority, while retirement is still many years in the future. If necessary, however, other sources can be tapped to pay for college, like grants, loans and scholarships. This is why some experts say that, if faced with a choice between saving for retirement or college, many individuals will be better off choosing retirement.

There is one retirement vehicle that can be used to accomplish both of these objectives: the Roth IRA. Unlike contributions to a traditional IRA, money contributed directly to a Roth IRA can be withdrawn for any purpose before age 59½ without taxes or penalties — including paying for college. Therefore, an individual or couple could withdraw Roth IRA contributions (restrictions apply to rollovers and earnings) to pay for their children’s college and leave the earnings in the account to help fund their retirement.

In the next article, we will take a detailed look at retirement planning strategies for individuals in their 50s.

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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Lawrenceville, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 800-367-3000 Visit our website: www.davidlerner.com

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