Even though people say that 40 is the new 30, you should still make sure that your financial habits and outlook truly match your age. Here are five aspects of finance you should consider solidifying by the time you turn 40.
If you bought a policy in your 30s or even in your 20s, chances are you went with the least expensive package. However, this may not be the right policy for you anymore. As you approach your 40s, perform an insurance audit and take a close look at all your property and assets. If you purchased a small insurance policy through work and haven't gone over the coverage terms in years, there's a good chance that your financial goals are significantly different not.
You should also be clear on the difference between term insurance and a permanent policy. Term insurance is only for a set period of time, while whole life or universal life insurance is yours for a lifestyle and will benefit your loved ones when you pass away. A whole life insurance policy costs more, but is often the best choice, and you may be able to afford it in your 40s, since your salary has likely increased in the past 10-20 years.
These financial plans are to help secure your children's financial futures and/or pay for their college education. There's not a specific age that you should open this account, but the earlier, the better. The earnings in a 529 accrue over the time that the account is open, so the sooner you open the account, the more valuable the account will be over time. You can also arrange the account so that family members and friends can contribute to the account on the child's birthday(s) or for graduation. As your child grows, you may want to contribute more money per month to the account. For instance, if you were giving $100 a month to the 529 when your child was born, consider bumping it up to $200 a month once your child is out of elementary school.
Ideally, your parents should be investing in their own long-term care in case they need constant medical attention as they age. However, if your parents haven't done this or aren't able to do it, you should start making the investment. When you're in your 40s, your parents are likely in their late 60s or early 70s, which means you'll need to discuss end-of-life care, even though the conversation may be a little difficult.
Let your parents know that the sooner they purchase an end-of-care insurance, the more affordable it will be. If your mom and dad don't have a policy yet, there's a chance that you'll be helping to care for your parents financially, so taking out the policy yourself can increase the chances that you'll know how to handle your parents' medical expenses.
Your 40s are a good time to see whether you should refinance your mortgage and to check out your financial portfolio. Write all your financial goals down and evaluate whether you've reached them, or how far you have to go to accomplish them. During your 40s, you have to be more intentional and focused about your finances and get your estate plan together. Take a look at your 401K as well and determine whether you need to start contributing more to it, since you're closer to retirement than you were in your 30s and need to make sure you're financially secure once you're no longer working.
A number of workers are changing the roles they play in companies and switching to different companies more often than they did in decades past. This means that you should give serious thought to having a Roth IRA. This type of account makes your money more flexible, since you'll have more options for investment and your funds will be more accessible than the money you may have set aside in a 401K. Of course, you can also use the Roth IRA in place of a 401K. However, if your employer matches your 401K contributions, it's best to keep it active, and to set up a Roth IRA as an additional way to save for retirement, since this account is a sound investment, no matter how old you are.