If you want to know more about investing during the other decades of your life, don’t miss our other posts in this series about investing in your 20s, 30s, 50s, and 60s.

It seems like the older we get, the more responsibilities that appear which we are responsible for carefully balancing in our lives. When you were 20-something years old, you likely weren’t giving much thought about what decisions you needed to make back then for a retirement savings goal for age 30. That’s okay! If you were a real go-getter and were twenty-something when you bought your first house, it’s a notable achievement. If it’s still a goal—great!

Now that you’re in your forties, a lot has changed for you. If you have children, they are well on their way through grade school. You are established in your career and most of your priorities have to do with your family and your job. Do you now feel that you’re on track with investing in your 40s? It’s probably a tough question to ask because it seems like you get many different answers. Unfortunately, most HR retirement tools will tell you that you don’t have enough. No wonder many people avoid looking at their account balances! One of the best things you can do now is to start working with a wealth manager to properly identify what the right answer is for you when it comes to investing in your 40s for retirement. This will include taking a good look at your real estate and other investment assets.

Modeling your long-term investment planning

If you read finance articles for advice on investing and retirement in your 40s, you might get a different answer with every source you read. Use them to gain insights on what the statistics are but pay less attention to any advice on fixed dollar amounts. For example, CNBC has some good charts on what Americans’ average 401(k) balance is by age. The 40-49 category isn’t as much as you might think. The average forty-something year old only has about $100,000 in savings.

Investopedia offers a pretty solid savings model. In effect, it advises you to use your yearly salary as the benchmark unit for tracking progress towards retiring. Under this advisory model, you should have 4 times your yearly salary saved by age 45, and six times by age 50. Don’t forget to also factor in the average rate of yearly inflation, which fluctuates yearly between 2-3%. Remember, your dollar ten years from now won’t go as far, and your portfolio 20 years from now will have taken a significant impact.

The increase in the cost of goods over time (COG) is why it’s important to invest in assets that historically have a strong return on investment (ROI) despite usual inflationary pressure. Make investments with your financial advisor that are most likely to gain value without undue levels of risk. What you want is asset appreciation, which exceeds the effects of inflation and increases in the cost of living index (COLI). Retirement accounts generally do not show you how much less your investments will be worth in the future after inflation.

What you will need for retirement is a question unique to each individual. How close you are to being on track depends on your current lifestyle and how you are planning to live after you retire. It’s smart to make these decisions part of your financial planning. When you build on that, you have a better idea of how you can:

  1. Grow your investment capital
  2. Establish an investment strategy
  3. Set a timeline for execution of investments
  4. Manage your assets
  5. Manage your wealth holistically

Factoring in real estate investments

Real estate investing remains a strong contender among tangible assets that gain value. Despite market crashes, periods of high mortgage interest rates, and market bubbles, real estate is the king and queen of preserving capital for many Americans. Real property is attractive because there are many routes you can choose from to invest. Some people go with rental properties, while a second home is enough real property for other investors.

Online rental services such as VRBO and Airbnb have been a great asset to homeowners who want to use extra space or property as a business. Industrious hosts earn enough through their Airbnb properties to pay their primary mortgages. At the very least, try to earn enough lodging income to pay property taxes, insurance, and other “operational” costs as advised by the IRS.

Capital management companies create partnerships of investors to purchase properties that they can transform with higher operating incomes. If you don’t want to be a landlord, a private investment would be one option to consider. Consult your wealth advisor about the types of available options to invest in real estate.

Eliminating college debt

Have you heard that some people rack up $300,000+ in college debt and interest to finish training, certification, and degrees for their profession? Anyone with this much academic debt will, unfortunately, be paying it down over the greater portion of their life. So, how easy is investing in your 40s with the burden of student loans? Well, hopefully, the first professional job places you on track for career-long salary increases. All you can do is to continue to make payments. Attempting to pay off the debt in cash should be punctuated by periods of using your money as capital to make new investments apart from retirement planning. Paying off debt by wiping out your cash savings is not recommended.

Investing smarter with a finance professional

No one has all the answers when it comes to making the best investment decisions for any age range. That’s why having someone in a professional scope work with you to formulate a plan is such an important step. How you invest should evolve with you as you move through your life, and having a reliable, experienced financial planner as a partner by your side to help is one of the wisest decisions you can make.

SD Mayer is a full-service advisory and accounting firm located in the Financial District of San Francisco. With decades of combined experience at work, our wealth managers can help you to make some key decisions about investing in your 40s (and your 20s, 30s, 50s, and 60s too!) to put your mind at ease. Contact us to get started with an initial consultation.

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