Building wealth takes time. Your approach will depend in part on the stage of life you’re in. The way you handle your money as a 40-something is likely a bit different than the way you managed your finances in your 20s and your 30s. If retiring rich is your ultimate goal, here are three ways to work toward making that happen as you hit your midlife stride.
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1. Get Life Insurance
Saving as much money as you can in a retirement account or taxable investment account won’t do much good if your loved ones are forced to spend the money down prematurely. If you died without life insurance, your spouse or other family members would have to use your assets to cover your burial expenses or pay off debts instead of holding on to those assets for their own retirement.
Buying a life insurance policy can ensure that the money you’ve been setting aside for retirement can be used for its intended purpose. Term life coverage is typically the most affordable option for 40-somethings, but a whole life policy lets you build cash value. If you’re considering a whole life policy, it’s a good idea to consider how the potential return on your investment compares to the higher premium costs.
2. Develop Passive Income Streams
Boosting your income in your 40s is a smart move because you’ll have that much more money to direct towards your retirement and investment accounts. Asking for a raise or changing careers are two ways to increase your earnings, but you’ll only see a benefit for as long as you’re working. Creating passive income streams can keep the cash flowing long after you’ve retired.
Passive income streams are projects that require an initial investment of time or money but continuously pay out. For example, purchasing a rental property can yield an ongoing profit in the form of monthly rent payments from tenants. Investing in dividend stocks is another option for receiving regular payouts without much effort.
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The type of passive income stream you choose ultimately depends on how much time and money you can afford to put into it upfront. The greater your passive income, the less strain you’ll have to put on your nest egg when it’s time to retire.
3. Scale Down Your Spending
By the time you reach your 40s, you’re likely earning more than you ever have before. But it’s best to avoid letting those larger paychecks go to your head. While it may be tempting to upgrade to a bigger home, buy new cars or splurge on fancy vacations, this could be a good time to begin taking a step back in terms of spending.
Why? Because every dollar you can save in your 40s translates to more spending power you’ll have in retirement. Saving in your 40s is particularly important if you waited to start saving. By keeping your spending in check and saving more, you can minimize the odds of having your nest egg fall short after you retire.
If you’re still dealing with debt at this point, it might be wise to make eliminating those payments a top priority. Refinancing your mortgage or student loans or consolidating high-interest credit card debt might help speed up the payment process so you’re spending less each month.
Once you turn 40, you might feel as though you have a lot less time left to prepare for retirement. That’s why it’s important to take action and be proactive about saving. Covering your insurance needs, streamlining your expenses and looking for alternate ways to generate income can put you on the right track for your 40s and beyond.
This article originally appeared on SmartAsset.com.
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