Financial milestones everyone should reach before 40
Remember when you were a kid and couldn’t wait to be bigger? If you’re 40 or so, congratulations. You did it.
Find out: Here’s how much you should have in your 401 (k) account, based on your age
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Middle age brings more than graying hair and more difficult to remove fat than ever before. Forty is a good round number and a great place to take a break, check your finances, and take stock of the financial milestones you’ve reached – and those that still turn out to be elusive.
See: You Should Regularly Check Your Social Security Balance – Here’s Why
The following is a list of the most important middle age monetary markers. Most of the milestones you’ll read below are general benchmarks that don’t apply to everyone equally. If you aren’t even in the stage of some or all of them, don’t panic. The full retirement age for people born in 1960 or later is 67, giving you over a quarter of a century to catch up, change your habits and make up for lost time. But keep in mind that you are on the other side of the bump now and time is not something you want to waste too much.
Last updated: July 19, 2021
A few months of cash reserves
In middle age, you should have money saved in an emergency fund so that you can weather a job loss, medical emergency, or other unexpected financial storm. The pandemic completely changed misconceptions about the traditional emergency fund, as even the most cautious and committed savers did not have enough cash to withstand a year of crisis.
Surprising: Here’s how much money Americans actually pulled out of their retirement savings amid the pandemic
According to Vanguard and many other financial companies and experts, however, the virus was an outlier and the old emergency fund rules still apply. At 40, you should have three to six months of savings set aside to get you through the tough times that are still looming on the horizon.
Read: COVID-19 has made us all more broke – Here’s how we struggle with money at each age
A brokerage account
If you had siphoned off a portion of every paycheck into an investment account since your first job as a teenager, you might have been able to retire at 40. But if life came along and you didn’t have the chance, join the club. The good news is that 27 is still a long time to catch up.
More: How to open a brokerage account
Money in a savings account loses value because of inflation. If you want your money to make money, you will need to take risks and invest it in the stock market, which requires a brokerage account. There was a time when high costs excluded ordinary people from the market. Today you have your pick of free brokerage firms – M1 Finance, Firstrade, and Robinhood, to name a few – which are available to investors on shoestring budgets with no experience.
Related: Robinhood Review: Is Robinhood the Best Trading App?
Three times your salary in retirement savings
According to CNBC, Fidelity, and conventional wisdom in general, you should have three times your annual salary saved for your retirement at age 40. If you earn $ 50,000, for example, you should have $ 150,000 in the bank in your 401 (k).
Note: rising inflation is causing many retirees to worry about their nest egg
If you don’t have an employer-sponsored retirement fund, it’s up to you to open a self-directed account like an IRA or Roth IRA – you can do this directly in your brokerage account from the last section. You still have time, but not to waste. Start now.
Learn: Turn Your $ 50,000 Salary Into a $ 1M Retirement Fund
Life insurance is not a universal financial decision, but there are a few standards for someone entering their fifth decade of life. In almost all cases, if you have children, you need life insurance. The same goes for aging parents, a spouse or domestic partner, or anyone else if they depend on all or part of your income. If you want to bequeath an inheritance to your heirs but have no assets to bequeath them, life insurance is for you, as if you want to make sure your final expenses are covered.
There are many different types – term, integer, universal, variable, etc. – which meet many different needs. You’ll have to do this research on your own, but one thing is for sure: 40 is neither too old nor too young to invest in the security that life insurance offers.
Find Out: How To Find The Best Life Insurance Policy For You And Your Family
An estate plan
Death is an uncomfortable subject for everyone, and while 40 is hopefully too early to start worrying about the inevitable, it certainly isn’t too early to start planning for it. If you have children, you need an estate plan. Likewise, if you have aging parents, real estate, a 401 (k) or other retirement fund, investment accounts, or a fundamental desire to achieve your wishes if you die or become unable to make decisions on your own- even during your lifetime.
Tip: How to talk to your parents about their estate plan (without making it awkward)
It’s not a pleasant subject, but it doesn’t have to be an overwhelming task either. Estate planning at LegalZoom, for example, starts at $ 179 and comes with legal advice from a qualified lawyer.
Prepare: Your Estate Planning Checklist: How to Create a Financially Sound Estate Plan
An education savings plan
If you have children, even if you are a brand new parent, they may seem small now, but time just keeps ticking. The average cost of a college education is now $ 107,280 for a public school and $ 219,520 for a private school, according to the College Board.
To know: A Parents Guide to Education Savings
Unless you are able to find that kind of money when the time comes, you have two options: impose parental / student debts on yourself and your children when they finish high school or start saving. now.
A special account called 529 makes it easier to save for college, and it also offers many other benefits, including tax deductions, tax-free withdrawals, tax-deferred growth, and tax benefits on donations. There is no limit on how much you can contribute to 529 funds, you control the investments and you can access your money when you need it.
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This article originally appeared on GOBankingRates.com: Financial Milestones Everyone Should Reach Before the Age of 40