Planning for retirement in your 40s

This decade is the prime of most people's career. The median income for 40-something households is over 10 percent higher than for 30-something households, according to the Federal Reserve's most recent Survey of Consumer Finances. And the percentage of those who are enrolled in workplace retirement plans jumps to over 60 percent.

However, credit card balances are also higher for those in their 40s, with the average credit card balance being $3,800 versus $3,000 for those in their 30s. So, your 40s are a time to make sure you're focused on some key things, while continuing good practices.

First, this is the time to build up your retirement accounts. Because you're earning significantly more now than in your 30s, many things can be tempting -- the bigger house, the nicer car -- but don't do it! Every dollar you fail to put aside now could mean $10 less in retirement income.

Think of that for a second. For every $5 coffee drink you buy, you lose $50 dollars in potential retirement savings. A $200 difference in your monthly car payment could be $24,000 in retirement instead. At the very least, make sure you're taking full advantage of any company match in a workplace 401(k) or 403(b) plan.

The second one is unpleasant to think about but important: You need to buy disability and long-term care insurance. As you age, your chances of becoming disabled also rise. To avoid the possibility of rerouting all of your retirement funds to pay for care, you should ensure that you have insurance. This will protect you and your family from the financial instability that such an accident could cause.

Third, carefully consider your children's education expenses. This can be tough for some parents to swallow, but here it goes: Don't gut your own future while you're trying to ensure theirs. You have many options -- beyond student loans -- when it comes to paying for college, so don't immediately sacrifice your financial well-being.

A study by the Federal Reserve Bank of New York last year shows that middle-aged Americans are actually the demographic group struggling the most with student loan payments, mostly for their children. Do not take on more debt than you can easily repay, and work with your children to understand and consider lower-cost alternatives if paying or saving for college means stinting your own retirement savings. Ultimately, your kids can take out loans for college, but you can't take out loans for retirement.

Finally, you have to pay off those credit cards! I harp on this one because it's so very important -- and it's such a common problem. Just like the car payments, the interest charges on these cards quickly add up, causing you to miss out on thousands in retirement.

In addition, carrying a balance also affects your credit score, and it reduces the amount of money available to you -- both on the card and from lenders -- in the event of an emergency or large purchase that you would like to make.

All told, if you can keep these pointers in mind while you're in your 40s, you'll thank yourself heartily in your retirement.
  • Mellody Hobson

    View all articles by Mellody Hobson on CBS MoneyWatch»
    Mellody Hobson is President of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News and CBSNews.com.

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