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It’s a new decade and that means new beginnings. For many, that means New Year’s resolutions regarding their personal finances. While resolutions might differ from person to person, they all address the same issue – the need for financial stability and prosperity.
Yet for many in their forties, the search for financial stability can be elusive. In fact, only 59% of this group – often considered the younger section of Generation X – are confident that they can retire comfortably according to the recent 2019 Annual Transamerica Retirement Study. This perspective is a function of the daily ups and downs of a financial life that make it hard for people to feel like their finances are actually moving forward.
There is one piece of advice that might make a difference for how this group approaches their finances in the next decade: Play the long game.
This advice is nothing new. One of Warren Buffett’s quotes lays explains it quite simply: “The stock market is a device for transferring money from the impatient to the patient.”
Having a long-term vision could be a real financial gamechanger, but you must be patient with your planning, which can be challenging. It requires an understanding of history, a vision of who you are and a professional who can coach you towards your goals.
An Understanding of History
The ability to have perspective can help with financial planning. It’s something that people in their forties can understand if they look at a little history.
Ten years ago, we were coming out of the Great Recession and most of this group of Gen Xers were in their thirties. Compared to the generations both older and younger, individuals in this group were more adversely impacted by the recession. In fact, the Pew Research Center found the median Gen X household net worth declined 38% from 2007, which was higher than for other generations. This is due, in part, to the fact that Gen Xers had a 42% loss in home value and 20% loss of other financial assets.
Yet a decade later, those in their forties have seen a huge rebound. In fact, Pew found that Gen X as a generation rebounded better than any other generation in its study of 2010 to 2018. In 2009 and 2010, finances seemed dire, but we see now that those who stayed the course benefited the most.
A Vision of Who You Are
Benefiting from the rearview mirror, the question is how to implement a long-term view over the next decade. As corny as it might sound, the key is to connect with your future self; to simply sit back and think of who you will be in ten years. Most of this group will be well into their fifties at the end of this new decade. It’s important to visualize how much you should have saved by this point.
Both T Rowe Price and Fidelity Investments advise that by age 55, you should have savings of at least seven times your salary. Current data show that many are behind. The Transamerica 19th Annual Retirement Survey of Workers found that in 2019 the average Gen Xer had approximately $66,000 saved for retirement. The average forty-something’s salary is $85,600, which means that those currently in their forties should have just under $600,000 saved by their mid-fifties. This may seem like an insurmountable goal, but visualizing what you need to do to get close to this goal can help make a difference in savings. Playing the long game means saving a small amount annually to hit these bigger goals.
Coaching Towards Goals
By the time you hit your forties, your personal finances are much more complex than they were in your twenties. Beyond imaging where you want to be in 10 years, there is another investment you should consider: Hiring an advisor to provide guidance.
The forties are a good time to seek professional guidance as it can mean the difference between hitting your goals or not. But today’s marketplace is not always clear as to who could be a be a good planning advisor.
That’s where forty-somethings must be discerning. Simply hiring an investment professional isn’t enough. It’s wise to seek a financial planner or a CPA. Both professionals are aligned with your need to view your finances from a holistically. Further both have the expertise to run long term scenarios that reflect your goals, and are able to coach you along the way so you can reach them.
In finding the right person to work with, it’s important to understand their client relationship style, especially as it relates to periodic meetings and the need to address all areas of finance. Meetings should not simply focus on investment products.
Patience Takes Practice
Ultimately those in their forties can use the next decade to get ahead. It requires patience but those who exercise it are generally rewarded. Patience requires understanding history, visualizing your goals and getting the right help to achieve them. It can make all the difference in your financial future.