Three things financial advisors should discuss with plan participants in their 40s

Three things financial advisors should discuss with plan participants in their 40s


By the time many people have reached their 40s, they’ve already experienced the highs (and perhaps the lows) of personal finance. They may have some money in the bank, own a house, be saving for their child’s college tuition—and hopefully, they’ve also been contributing to a retirement plan.

The full retirement age in the United States is 65, but the actual average age of retirement in America is 63—meaning that workers in their 40s still have roughly twenty years to continue saving for their golden years before they’ll likely leave the workforce [1]. That being said, a big financial mistake made when a worker is in their 40s can be much more devastating than if the same mistake was made in their 20s. And as a financial advisor, you have the unique ability to offer advice and education that can prevent seasoned workers from making common financial mistakes—putting them further along the path to retirement readiness.

Advising workers in their 40s on retirement outcomes

Financial advisors can make a substantial difference in the retirement outcomes of their clients, so it comes as no surprise that four in five adults in the United States agree that they could benefit from answers to everyday financial questions by a professional [2]. It’s clear that the value you provide as a financial advisor is immense, and discussing the following areas of personal finance with clients in their 40s will help them properly prepare for the autumn of their lives.

· Lifestyle inflation

Clients in their 40s are well-established in their careers and are probably making more money than ever before. It can be tempting to use this extra disposable income to “keep up with the Joneses,” but it’s vitally important for clients not to fall into the trap of overspending due to lifestyle inflation. Clients can certainly increase spending on certain areas of their lives, like upgrading that car with crank windows or taking a longer vacation to decompress from stress, but it’s important that they still save a portion of their now higher income and not let the extra cash burn a hole in their pockets.

· Retirement contributions

Following the same line of thinking, as clients’ income increases, so should their retirement contributions. Some clients may be tempted to utilize their higher income to fund lifestyle inflation, but instead, remind them of the importance of putting it away for their future. Always play it safe and assume clients didn’t adjust their retirement contributions on their own when their salary increased, so help them analyze their current contribution levels. If they’re making more money than they were five or ten years ago, then their retirement contributions should reflect that extra income.

· Sort out savings

Many 40-somethings face the dilemma of choosing where to allocate extra funds in their budget. Should extra money go towards saving for children’s future college expenses or for saving for the client’s own future? When the decision is left solely up to the client, T. Rowe Price found that nearly 7 in 10 parents feel like they should put money towards their kids’ college education first and save for their own retirement after [3]. As a financial advisor, you’ll be able to point clients in the right direction—allowing them to reach their individual goals, follow their personal budget, fund their desired lifestyle, and achieve the retirement lifestyle they’ve always envisioned.

As a financial advisor, you have the opportunity to be a difference-maker in the retirement outcomes and overall lives of your clients. Preparing for retirement is a big job, so it’s important to sit down with clients well before they reach their golden years. Discussing key areas of financial concern with clients while they’re in their 40s can go a long way in enhancing their overall retirement readiness—now and in the future.