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Submitted by: Charlton Brown
Why the time is NOW for the 40 something man to start preparing for his future!
If I were to ask you which age group is experiencing the most financial hardship, you might think of the Baby Boomers (55-70) approaching retirement after a decade of weak stock and real estate markets or the Millennials (21-34) squeezed between poor job prospects and high student loan payments. Theres some truth in both of those characterizations. But according to recently released generational research report, its the smaller and often forgotten Generation X (35-49) that is struggling the most.
Generation Xers are suffering the double whammy of experiencing touch economic times at a particularly vulnerable financial stage of life. While most Millennials were too young to own stocks or real estate during those market crashes and Baby Boomers enjoyed decades of growth in both assets throughout the 80s and 90s, many Gen Xers had the misfortune of starting their investing just as both markets were peaking. As a result, a recent census report found that people between 35 and 44 saw a 59% decline in median household net worth between 2005 and 2010, the largest drop of all age groups. A household age 35-44 is now 44% poorer than their counterparts of the same age in 1984 according to a Pew Research Center study.
This comes at a stage of life in which a majority of Generation Xers own a home (translate: have a mortgage payment) and have minor children (translate: extra mouths to feed). Both are in contrast to the younger Millennials who have fewer financial responsibilities and can often rely on the Bank of Mom and Dad for help. Baby Boomers are usually empty nesters and have had more time to build up emergency savings and other assets. Is it any wonder that this age group reported the highest levels of financial stress?
So if youre a Gen Xer or 40 something man contemplating improving your financial situation this year, here are some moves to consider:
1) If you have a family, make sure its protected. That means more than teaching Junior how to cross the street. It also means having adequate life insurance and basic estate planning documents like a will, advance health care directives, durable power of attorney, and perhaps a living trust if you own real estate.
2) Create a budget. Generation Xers are the most likely age group to live beyond their means. The first step to living below your means is to find out what your current expenses are by looking at your previous bank and credit card statements and categorizing them on a worksheet. (Dont forget to also include non-monthly expenses like vacations and holidays by dividing their annual amounts by 12.) You can then see if you can reduce any of those expenses until your spending is less than or equal to your take home income (sorry, youre not the federal government).
3) Manage your cash flow. Once you have a budget, the hard part is sticking to it. You can track your spending online with a site like Mint or yodlee Money Center that can also send you alerts when you start to spend too much in any area. Another option is to give you and your spouse set cash allowances each week or month. You can spend the money however you like but when its gone, its gone until the next week or month.
4) See if a strategic default on your mortgage makes sense. If youre still struggling to pay your bills and youre underwater on your mortgage, a mortgage calculator can help you decide whether it makes sense to just walk away from your home. However, it will certainly hurt your credit and you may want to seek legal counsel about other possible ramifications.
5) Pay off high interest debt. Generation Xers were the most uncomfortable with the amount of non-mortgage debt they had. Paying down any high-interest debt (anything above 6-8%) should be a top priority for your savings. The quickest way is to put any additional payments towards the debt with the highest interest rate. As one balance is paid off, those payments would then be re-allocated to the debt with the next highest rate until theyre all paid off.
6) Run a retirement calculator (with some caveats). The top vulnerability for your generation is not saving enough for retirement. The good news is that youre still young enough for more savings to have a significant impact. You can get an estimate of your Social Security benefits here (use future dollars for our calculator) but dont take the numbers at face value. Instead, youll want to reduce the benefits by at least 75% since thats how much of the benefit is projected to be funded after 2033. If you need to save more than you are now, go back to your budget and look for more ways to cut expenses. The key is to balance your current and future spending.
7) Contribute to a Roth IRA. One place to put those savings is a Roth IRA. If youre a typical Gen Xer, youre trying to balance multiple goals so you can benefit from the dual benefits of a Roth IRA as a vehicle for both retirement and emergency savings (our research showed that lack of both were their top two vulnerabilities). Whatever you contribute to a Roth IRA can be withdrawn tax and penalty free at any time and for any reason so your money wont be tied up if the next Hurricane Sandy costs you some money in repairs. On the other hand, whatever you dont withdraw grows to be tax-free after age 59 1/2 so dont dip into this account for your next iPad purchase. Just dont take out any earnings before age 59 1/2 or they could be subject to taxes and a 10% penalty. Leave the Roth IRA invested someplace safe and accessible like a savings account or money market fund until youve accumulated enough emergency savings (at least 3-6 months of necessary expenses) somewhere else.
8) Increase contributions to your employers retirement plan. Since even maxing out your Roth IRA contributions is unlikely to be enough, youll probably need to save more in your 401(k) or whatever plan your employer offers. But dramatically increasing those contributions may not be realistic with a large mortgage payment. Fortunately, that mortgage payment wont rise with inflation the way your income will and you can start putting the difference away for retirement. See if your retirement plan provider has a feature called a contribution rate escalator to do that for you automatically by gradually increasing your contribution rate until you reach your target percentage. If not, it only takes a few minutes each year to increase it yourself.
9) Consider using a target date retirement fund. These funds are designed to simplify your investing by providing a one-stop shop that will start relatively aggressive and automatically become more conservative as you get closer to retirement. You may be tempted to be more conservative now since youve largely experienced a weak stock market but keep in mind that long periods of low stock market returns tend to be followed by periods of strong returns. Youll want to be invested when that happens.
Generation Xers have been bombarded by a host of financial challenges at a time when theyre struggling to pay mortgages and raise families. But previously known as the latchkey generation, they are no strangers to self-reliance in the face of adversity. Theyll just need a little of that self-reliance to deal with the problems of today.
If you feel that you are not getting out of life what you deserve become a part of a community of successful and happy 40 something men who are taking control of their life by following the path of The New 40 Something Man.
About the Author: I am a lifestyle expert with specialization on 40 something men.To learn more, download my free 26-page guide here
newrulesforthenew40somethingman.com
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