Midlife is filled with challenges and opportunities. Yes, you might be in the thick of paying for college, but soon all those other costs that come with kids should be behind you—or so you hope. And while losing your job may be a bigger risk now that you’re older, you’re also likely in your peak earning years.
When you’re making the most is also when you should squirrel away the most. Some 40% of successful savers—those who built nest eggs equivalent to 10 times pay—did so by saving 15% or more of their incomes for at least 10 years, a study by Hearts & Wallets found. Here’s how:
1. Forget your bonus. A decade ago your bonus helped you buy a house. Now use it to shore up your future. Hearts & Wallets found that the most successful “burst savers” socked away any income above the norm, like bonuses, raises, and banner commissions.
2. Remember your age. The year you turn 50, you can start making catch-up contributions to your retirement plans—in 2015, an additional $6,000 in your 401(k) in 2015, and another $1,000 in your IRA.
3. Look into your future. Don’t let your energy flag now. To stay motivated to save, envision yourself in 20 or 30 years. Researchers Daniel Bartels of Columbia University and Oleg Urminsky of the University of Chicago found that people who feel connected to their future self are more willing to wait for a reward. You can create an aged picture of yourself at Merrill Edge’s FaceRetirement.com.
4. Keep your hands off your 401(k). When college costs hit, that juicy 401(k) looks tempting. Resist. J.P. Morgan Asset Management crunched the price: Save a steady 8% from age 25 (with a salary of $30,000 that rises 2% a year), and you could have $1.3 million at 65. Take a $10,000 loan at 33 for a home, a $10,000 loan at 50 for college, and make a $10,000 early withdrawal at 62, and that drops to $930,000.
5. Be sure your kids graduate on time. Budgeting for them to finish in four years? Most students take five or six. At many schools the credit level for full-time enrollment is less than you need to graduate in four years. To avoid footing the bill for another year or two of tuition, check that your child is carrying the max course load, or suggest summer community college classes.
6. Go easy on school loans. Saying no to your kid is hard, which may explain why parent PLUS loan balances have doubled over the past 10 years. But taking out lots of those loans, which recently carried a 6.4% rate, can be risky. A good rule of thumb: Don’t borrow more than you can repay within 10 years or by retirement, whichever is first.
7. Dig into investment fees. Some 60% of investors have no idea how much their advisers are paid or think the advice is free, Cerulli Associates found. Figuring out the tab can be tough, especially if you own annuities or face layers of fees (1% for the adviser, say, plus extras for the actual investments). Have your pro spell out every penny so you can judge if the help is worth the price.
8. Become a landlord. Lots of real estate markets have bounced back, but there are still places where it pays to buy investment property. Look for strong population growth and low unemployment, which spur rental demand.
9. Accept help. If your 401(k) offers advice, take it. Research by Financial Engines and Aon Hewitt found that 401(k) investors who took advantage of their plan’s advice offerings, including target-date funds, earned median investment returns that were 1.9 to 2.9 percentage points a year higher than those who did not. That adds up.
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