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Financial Independence: Life after 40

Financial Independence: Life after 40

September 02, 2021

Continuing our examination of financial independence, we’d like to explore questions that people over 40 years of age should be asking that can help ensure they’re on pace for independence. How you have managed finances for the first half of your working life will determine where you stand in the quest to reach financial independence in the second half. Time still exists for anyone who might have procrastinated – but discipline and accountability will be needed to reach your goals.

If you’re over 40, ask yourself the questions below to learn where you stand and where to go from here to reach your goals.

  • Have I updated my financial plans and goals?

The plan and goals you previously created may not be relevant as life has gotten more complex. Goals for those over 40 should include aggressive elimination of consumer debt, maxing out saving and investing capabilities and understanding where income will be derived once retired (investments, social security, passive income, etc.). You need to clearly understand if you are on track to reach financial independence and refresh action steps to get there.

  •  Have I saved enough or am I on track to save enough for kids’ college and/or weddings?

Run a projection based on current amount saved, and research average costs of these major life events for your children. These expenses can be saved for and paid for using several different resources, some of which have tax consequences.

  •  Should I change my investment strategy as I near retirement?

As mentioned in our previous article Financial Independence: Flourishing Under 40, compound interest is a powerful tool, and it can still be utilized after age 40 and even after retirement. However, the investment strategy used in your 20s or 30s may incorporate a higher risk strategy than needed in your later years. Each situation is different, so make sure your approach matches your circumstances.

  •  How will I fund living expenses for potentially 20-30 years of retirement?

People in the US are living longer now with a life expectancy of about 78 years. Many people are living well into their 90s. Does the plan you created in the past make conservative assumptions and plan for a long retirement? Analyze the investment interest and income across your portfolio as well as other sources of passive income (social security, pensions, real estate income, etc.). Ensure they cover current living costs as they inflate as well as potential long-term care or health related expenses in the later years.

  •  When should I take social security?

For those reaching 60 –understand your options for drawing on social security. The annual amount will increase each year you can delay until 70 years old. However, it may be in your best interest to begin taking earlier.

  •  Am I utilizing all available strategies to minimize income taxes?

Understand the difference in qualified (401k) assets, IRAs, ROTH IRAs and taxable brokerage accounts to intentionally plan for income and tax impacts once you begin extracting funds from these assets. Also, if there are years immediately following retirement where income is low, you may contemplate a conversion to a ROTH IRA, which can grow tax free for the rest of your life.

 There are endless scenarios we could discuss, but please reach out if we can personally help you.


Matt and Andrew