Avoiding the midcareer financial worry trap

Timothy Breitfelder

Even the most successful people have financial worries. One thing I have learned as a financial adviser is that the outward image we perceive of the success and happiness of other people is not a valid indicator of the worries or burdens they might carry inside.

There is a misconception that the greater the wealth of a person, the less worries they will have. Financial worries change at different income and net worth levels, but rarely do they go away.

Worry traps form when we can’t find a resolution. The following are a few common midcareer financial worry traps:

• Not having enough money for retirement.

• Saving for children’s advanced education.

• Paying medical costs in the event of an illness, or medical costs in general.

• Loss of job or career.

• Debt payments.

That said, worries can be helpful when they motivate positive action. If you have a worry about money, use that feeling as motivation to take steps to become more financially sound. Suggestions for preventing or alleviating common worries are:

Save Early for Retirement

When people reach the midpoint of their career, they often begin to pay more attention to retirement. The wear and tear of years of work prompts them to dream about retirement.

At this point a person might not only be approaching their peak earning years, but also their peak spending years for family obligations. If you are concerned about whether your retirement savings are on track, consider the following steps:

Assess whether your retirement assets will generate enough income to live the life you want after you step away from work. Understanding what savings are required going forward and setting a plan to get there helps to alleviate worries that your savings might come up short.Always contribute enough to receive the maximum company match if one is offered in your 401(k) plan or other workplace retirement plan.If 401(k) deferrals already are at the maximum, the IRS allows people older than 50 to save additional catch-up amounts into company 401(k) plans, traditional IRAs or simple IRAs.It is important to determine the right investment mix that balances risk and provides the proper return to meet your retirement goals. If your savings are behind where you’d like to be, carefully consider if taking on more investment risk makes sense for your situation. There are several factors to consider. If you want a second opinion, contact a financial adviser who can help you conduct an analysis.

Beware of Lifestyle Creep

Also known as lifestyle inflation, lifestyle creep can sneak up on you and prevent you from building an appropriate financial foundation.

As income rises, people tend to turn former luxuries into necessities, such as buying nicer cars, better clothes and a bigger house. This is all normal and understandable. However, letting expenses rise without building the proper financial foundation is dangerous.

A proper emergency fund becomes very important for unexpected expenses or job loss. Setting goals and allocating funds toward those goals is a critical process in controlling lifestyle creep regardless of the life stage.

Look for expenses to eliminate that don’t add to your quality of life. It is far too easy to add another subscription to monthly bills without fully using the services.

Evaluate Advanced Education Decisions Carefully

It is important to begin saving for children’s education once annual retirement savings are covered. A 529 college savings plan is a common solution for building college savings.

Evaluating education choices for the debt required compared to the earning power of the degree is important. You should evaluate whether the amortization period and loan amount will result a payment that is manageable based on the earnings of the expected career.

Extending the amortization period results in significant interest cost, so I like to see loans with amortizations of 10 years or less where possible.

Control Debt Levels

A byproduct of lifestyle creep, excessive debt creates a trap that is difficult to get away from. Decisions to take on debt can be made in an instant, whereas paying off that debt can take decades.

Carrying credit card debt for extended periods is one of the worst decisions a person can make. Saving in advance for large purchases to avoid debt always is a good idea where possible. Big debt decisions require considerable thought and analysis before signing on the line.

Car loans cover a relatively short period of time, so a mistake won’t impact an entire lifetime. Home loans might cover a major portion of a lifetime. It is important to plan ahead to ensure you avoid buying more house than you can afford. Life surprises happen and being saddled with a large mortgage can limit your options.

Your situation is unique and requires an individual analysis. If you are experiencing stress, without a perceived resolution, know there are steps – like I mention above – that can help you feel more financially confident. And, consider working with a financial adviser who can help you evaluate your situation and resolution steps. The greatest part about being a financial planner is working with people to assess their situation and creating the path to success.

This information is being provided only as a general source of information and is not intended to be the primary basis for investment decisions. It should not be construed as advice designed to meet the particular needs of an individual investor. Please seek the advice of a financial adviser regarding your particular financial concerns. Consult with your tax adviser or attorney regarding specific tax issues.