Your starter home is feeling a little small. You wonder how you will pay for your kids’ college. You just changed jobs — midlife — and are concerned about retirement.
The second third of your professional life, around age 35-50, can pull you financially in a lot of directions. Don’t know where to turn? Today financial planners are looking at a depressed economy and adjusting some of the old adages about attaining financial security.
The middle years are a good time to assess your finances and make adjustments, money managers say, so that you continue to lay a good financial foundation for years to come.
In the past few years, the economic downturn, loss of jobs and uncertain retirement security has made many mid-lifers sit up and take notice, said Johanna McMichael, a Wilton Manors certified financial planner. “The reality of the economy has made many people buckle down,” she said. “Before that, I think most of America was on a spending spree.”
Are you on the right track? Here are some tips from the experts on how to get there:
Here’s the good news. People are more realistic about finances in a down economy, said Jorge Aroche, a Coral Gables registered investment advisor.
“We are getting back to a better savings rate,” he said. “Before the real estate bubble, we actually had a negative savings rate. People were over-borrowing from their homes, maxing out their credit cards. Any elementary school student knows that you can’t sustain that — spending more than you make.”
People were forced into the reality that things weren’t going to go up forever, Aroche said. “They are definitely more conservative when it comes to investing their savings,” he said. “Even money managers might be more conservative in their asset allocation for a client, given the recent volatility.”
In this economy, the challenge is both partners having a job and the ability to put away savings, Aroche said. But that’s not all.
“For this age group, it’s spending less than what you earn,” said Helen Salazar-Realini, a certified financial planner with Raymond James Financial Services in Miami. “Once you are disciplined enough to budget, then you can start putting the pieces together.”
Another common mistake people make in mid-life is they think they’re going to inherit money, so they don’t have to bother saving, she said. In reality, they are cheating themselves.
“I think dollar-cost averaging is one of the most powerful ways of saving,” she said. “Putting away every month, no matter what, making that commitment, is a powerful way to save.”
Midlife crisis wants
The desire to upgrade hits this age group hard, Salazar-Realini said. “They want a bigger house, a better house, a nicer neighborhood,” she said. “But if you’ve been in a house 10 to 15 years, then you’ve paid down a lot of the mortgage. You’re better off staying where you are.”
And if you bought during the real estate bubble, like Salazar-Realini’s client who bought a $550,000 house 10 years ago that’s now worth $350,000, it doesn’t make financial sense to move.
“You have to make do with what you have,” Salazar-Realini said. “If you’re in a safe neighborhood and your kids are in good schools, then you should stick with it.”