5 Financial Milestones You Should Reach by Age 40

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By Kathryn Tuggle

Forty may indeed be the new 30, but that doesn't mean your financial picture should look as young as you feel. Here's a look at five aspects you need to think seriously about before you blow out 40 candles.

1. Life Insurance

If you bought life insurance when you were in your 20s or 30s you were probably looking for the least expensive way to get coverage, that policy may no longer be right for you, says Michael Luftman, financial adviser with the MetLife Premier Client Group.

"You need to do an insurance audit and take a look at everything you have. If you bought a small policy through your first employer and haven't reviewed your coverage in several years, it's highly likely that your goals have changed," Luftman says.

Many people will need to weigh the options of term insurance vs. a permanent policy. Term insurance is like renting a home, Luftman says: You buy a policy for 20 or 30 years and at the end of that it ends, while with whole life -- also called "universal life" -- the policy is yours for life and will provide a death benefit forever. "Whole life is more expensive, but once you're in your 40s, your salary has probably gone up, so it may be time to invest in a policy that allows you to accumulate cash value over time," he says.

2. 529 Plans for Your Children

There is no "right" age for someone to open a 529, but parents should know that the earlier they start saving for a child's education, the more time those savings can be invested in the market, says Peg Creonte, senior vice president of Ascensus College Savings.

"One of the great benefits of a 529 is that the earnings that accrue over the life of the account can come out tax free, as long as those funds are used for qualified education expenses," she says. The sooner your 529 account is opened, the more family and friends can contribute. "Think of all the birthdays and holidays that a child will celebrate before he or she finishes high school. 529 accounts usually come with easy-to-use gifting capabilities that allow friends and family to send a contribution right into the account in lieu of a gift for a special event."

If you already started a plan for your child, it may be time to re-evaluate and increase contributions, Luftman explains. "If you began contributing $100 a month when your child was born, look at putting in $250 or $500 a month. Unfortunately, this is the kind of thing that can get passed over on people's radar."

3. Long-Term Care Insurance for Your Parents

Ideally, this will be an investment your parents make themselves, but if they can't, it's probably a good idea for you to make the investment yourself, Luftman says. When you're in your 40s, your parents are probably in their 70s, and it's time to have a conversation about their end-of-life care -- even if it's difficult.

"This is one of the most important conversations you can have," he says. "You have to start asking what happens when your parents get sick or need care because you could be responsible for them financially. Where is the money going to come from?" The younger your parents are when they buy a long-term care policy (or when you buy one for them) the cheaper it will be. "It's a good time to ask these questions, even if the conversation is uncomfortable. Your parents don't want to be a burden on you, but that's what can happen if you don't discuss these things."

4. A Re-Evaluation of Your Overall Financial Plan

What's your current mortgage situation? Is it time to refinance? What about your portfolio? How diversified are you? "When is the last time you put everything down on paper and had a look at your family's goals?" Luftman asks. "Are your investments complementing one another? You're at a point in your life where you need to start guiding things a bit more towards the direction you want to go. You need to start documenting and prioritizing your goals and getting advice about your estate plan."

For example, it may be a good time to update your mortgage plan, either by refinancing or lengthening or shortening the term of your loan. With your 401(k), it may be time to rebalance your portfolio. Also, check in on your savings account and emergency fund. It's important that you have enough liquidity if you need cash quickly, but don't have too much cash sitting around.

"People in their 40s don't pay as much attention to their 401(k) plans as they should," Luftman says. "You're at a point in your life where you really need to think about asset allocation and make sure you're positioned to make the best use of your dollar."

5. A Roth IRA

With many workers today changing roles and employers more frequently than previous generations, serious consideration should be given to Roth IRAs over maximizing deferrals in the 401(k), says Kevin Boyles, vice president of business development at Ascensus. "Roth investing makes the money more flexible in terms of where it can be invested, and the money is more accessible than if it was in a traditional 401(k)."

To be sure, it's still critical to make sure 401(k) deferrals are being made, especially to capitalize on employer matching contributions, Boyles says, but the Roth IRA is a strong option for investors of all ages.
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