If you are in your 40s, you probably have established your career, family and housing. Hopefully, you have begun to save for the children’s education, unexpected expenses, and retirement. As you work through this, let’s look at some things you need to consider.
Valerie RumboughFirst, let’s look at college education. As I mentioned before, there are a lot of options for funding education expenses besides trying to do it all yourself. Help your children develop talents and skills, and encourage good grades, as these may open the door for scholarships. The money you do save, however, can be placed in a number of different accounts. The most popular right now is the 529 account, which can be started at a number of different banks and investment firms. Basically, you place money in the account each year, and when your child reaches college age, they are able to draw out the savings (plus any earnings) tax free, if used for qualified education expenses.
Next, hopefully you are saving for those unexpected events that may cause you to lose income, such as a job loss, birth of children, or illness. A good rule of thumb is to have three to six months’ savings in the bank. If you haven’t started that yet, now’s a good time. Begin with placing a small amount in the bank and gradually add to it as you can. As you work on your budget from year to year, don’t forget to budget for savings, and work on increasing the amount you put away each month. You never know when you will need it.
Last, but most important, is your retirement savings. If you haven’t started, begin today. Every day missed makes it harder to save enough, since you now have to put away much more than you would have in your 20s or 30s. You are now close enough to begin determining whether you are on track in meeting your retirement goals.
Don’t know what your retirement goals are? Consider what you would like to accomplish at retirement – no mortgage, travel more, etc. Then develop a retirement budget. An easy way to do this is to assume your retirement income needs will be between 80-100 percent of your current income needs. Then, based on inflation, earnings on investments, etc., you can determine how much needs to be in the bank on the day you retire. There are several retirement planning software packages out there, and some can be accessed on line at no cost. One is found at http://www.dinkytown.net/retirement. Once you determine this, you will be able to measure your progress periodically.
As your situation changes, you can adjust the numbers. Remember, God expects us to plan wisely.
Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at (800) 723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.