How to Plan Your Financial Future in Your 40s

Your twenties and thirties can feel like a blur. When you’re in your forties, it’s a great opportunity to step back, take a deep breath, and assess where you’re at and where you’d like to go.

Asset accumulation hits full stride when you are in your forties, as your personal income tends to be higher than in previous decades. On the flip side, your expenses may be greater and retirement is that much closer. The forties can be a tricky balancing act, so here are some thoughts on how to prepare yourself for this new phase of life:

The dos:

✔ Review your goals. As life changes, so will your wants and needs. Reviewing your longer-term goals in your forties is a great way to ensure that what you may have wanted in your twenties and thirties is what you still want today.

✔ Double down on saving. With your salary likely larger than ever before, now is the time to save as much as possible. The average household savings rate in Canada is 4.6%1, but you should aim for more than this, particularly if you saved less in your lower-earning years.

✔ Focus more on retirement. Saving for a rainy day is important, but in your forties, saving for retirement is equally, if not more, so. With an emergency fund in reserve, focus on maximizing tax-deferred accounts like TFSAs and RRSPs to grow your nest egg, benefiting from the tax deduction at tax time on the latter.

The don’ts:

✘ Upgrade your expectations too much. If you purchased a starter home earlier on in life, it may start to feel a little cramped, particularly if you have growing children. A common mistake is upgrading to a larger home than you can reasonably afford. Stay within your comfort zone – typically, no more than 30% of your income should be spent on housing.

✘ Be tempted by big-ticket items. Renovating your home or buying a cottage – these are some of the big ticket expenses that may be luring you in and they are increasingly paid for with credit. Managing your debt load is key, and a financial advisor can help ensure it is well structured for your needs.

✘ Be overly conservative when investing. Although you shouldn’t take on more risk than you’re comfortable with, you should have a firm understanding of how your risk tolerance – alongside your investment objective and time horizon – could impact your retirement savings. To update (or develop) your financial plan, review your savings level and re-examine the right mix of investments for you, and talk to your financial advisor.

Check out how to plan your financial future in your 20s, 30s, 50s and 60s.

1 As of second quarter of 2017; Statistics Canada

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