In your 40s, you’re likely hitting your peak earning years and beginning to evaluate your savings strategy for retirement or your children’s future. Americans in their 40s managed to save over $6,930 in 2023, ranking second on the list of age groups who saved the most. Marguerita Cheng, a certified financial planner, noted that people in their 40s have competing financial burdens such as student loans and child care expenses, which can affect their ability to save.
Cheng offers three tips to help people in their 40s save more. The first tip is to take advantage of dependent-care flexible spending accounts (FSAs) offered by employers. These accounts allow you to use pre-tax dollars to pay for child care expenses like daycare, after-school programs, or summer day camps. Contributions are capped at $5,000 per household or $2,500 each if filing separately, helping to lower taxable income and leave extra cash for savings.
If you have student loans, Cheng recommends exploring new payment options. Changes in your life during the three-year pause on student loan payments that ended in October 2023 may have increased expenses, especially if you have had children recently. Different repayment plans, such as the Saving on a Valuable Education plan based on income and family size, or the graduated repayment plan with increasing payments, can help you pay off your balance. Additionally, student loan payments can lower the amount of taxes owed through the student loan interest deduction.
Professional development opportunities can also help boost income and savings for people in their 40s. Cheng suggests taking advantage of chances for learning and development, especially if offered by your employer. Improving your skills, such as completing a certificate in a new field, can potentially increase your income and help you save more. Seeking out opportunities for professional growth can be beneficial in increasing earning potential and saving for the future.
Overall, saving in your 40s requires a strategic approach to navigate competing financial burdens and prioritize long-term goals. By taking advantage of dependent-care FSAs for child care expenses, exploring new payment options for student loans, and investing in professional development opportunities, individuals in their 40s can increase their savings potential and secure their financial future. It is important to evaluate your current financial situation, explore various savings strategies, and make informed decisions to achieve your savings goals in your 40s.
