Being in New York, I know many single professionals who are either approaching 40 or just passed that milestone. Single professionals are an often-neglected group in financial literature, and I’ve noticed that’s because there’s no real playbook. Many are not doing things those in relationships or with kids are being urged to consider. This is why turning 40 is a wake-up call for single professionals.
If You’re Not Happy With Where You Are, Create A Plan And Fund It
Many 40-year-old professionals who I know have something in their life or career they aren’t happy with now, but they make enough to be comfortable, so changing trajectories is difficult. Maybe your career path isn’t rewarding. Maybe your boss is terrible. Maybe you’ve been dreaming of starting a business on your own, moving to another city or country, taking a sabbatical, or maybe you want to shift your responsibilities to support aging loved ones.
If you want to make a change, ensure that you can handle the transition. Step one is to take your goal and figure out how much money you would need in the worst-case scenario. Then, set a date to achieve this goal by and systematically save for it, ideally in a high-yield savings account or investments, depending on your risk tolerance and time until the date you set. If the result doesn’t feel achievable, adjust your date or explore other funding options, like loans, selling assets, lending or renting out assets, or investor funding.
You May Not Know Where You Currently Stand
I often hear things from these professionals like, “I think I’ve saved a good amount but I’m not sure.” While most professionals know what they make, I find that they rarely know what they have. This indicates that it might be time to conduct a net-worth audit.
Take stock of what you have, and how they are invested. Here are some things people often miss in their net-worth calculations:
- Brokerage accounts
- Roth IRAs
- Old 401(k)s
- Gifts or inherited assets
- CDs or high yield savings outside main bank
- Student loans
Once you take stock of what you have, then organize these into:
- Retirement assets: invested (usually tax-advantaged) money you will not be using until retirement
- Non-retirement assets: invested money you will be using for a goal other than retirement
- Emergency reserves: money in cash/cash equivalents to be used in case of an emergency, like extended unemployment or unforeseen injury
- Debts: anything you owe over any period
It’s Time To Really Think About Retirement Goals
Once you’ve done your financial audit, then it becomes a lot easier to benchmark retirement. Among the 40-year-old single professionals I know, many do not have firm retirement goals. Some will use general rules of thumb, like how Fidelity suggests aiming for three times your salary saved by age 40. General rules of thumb can work for some, but if you have unique goals, you’ll need a bit more customization.
Consider the following:
- When would you want to wind down from work and become financially independent?
- Do you want or expect your current lifestyle to change when you hit retirement?
- Do you plan to live in the same place in retirement?
- What happens when your daily needs become more than you can manage on your own?
If you want to wind down before age 67, expect a lifestyle shift to include more expenses or a potential move. If you have a family history of degenerative conditions, this rule of thumb will not work for you, and you should consider more customized planning.
If you’re behind on retirement savings, consider increasing your contributions if possible. Contribution limits allow you to save $24,500 in an employer sponsored plan and up to $72,000 if you’re self-employed.
If you’ve ever had a career shift or a significant income shift, online calculators may have inaccurate Social Security expectations. You can find your accurate Social Security Earnings Record on the Social Security website, which will give the best indication of what you can reliably expect as a supplement to your retirement savings.
You May Need More In Reserve Than You Think
In your audit, emergency reserves are separated from non-retirement assets because they should not ever be drained unless there is an emergency. As a single professional, you may need more of an emergency reserve than some counterparts in dual-income households. The standard guidance is holding three to six months of expenses in emergency reserves, depending on your income stability. Naturally, it’s more likely that a single-income household would be highly impacted by an injury or unemployment without a second income to pick up slack. I would err on the side of closer to six months of emergency reserves, even with a stable income.
At 40, Your Future Earnings Are Still Your Biggest Asset
Right now, you are entering your peak earning years, but you may still be a long way from retirement. It’s likely that your biggest asset is still your earning potential, worth up to several millions of dollars over the remainder of your career. This is the year to consider benchmarking your work benefits, including disability income insurance.
Being Single Doesn’t Mean You Don’t Need An Estate Plan
Because you may not have a spouse or children to ensure they are cared for if you were to pass, estate planning is often overlooked for singles. Estate planning isn’t just about death—it’s also about having a plan if you become incapacitated. Without documents in place, these decisions could be left to courts or relatives you may not have chosen.
At a minimum, consider evaluating:
- A will to make your wishes clear, even though the courts will likely still need to be involved.
- Healthcare power of attorney to designate someone to make health decisions on your behalf if you become unable to.
- Financial power of attorney to designate someone to make financial decisions and act on your behalf if you aren’t able.
- Your beneficiary designations on accounts with direct beneficiaries, including retirement accounts, life insurance, and transfer-on-death bank and brokerage accounts.
In Your Peak Earning Years, You Need To Consciously Avoid Lifestyle Creep
Without a plan in place for systematically saving for your financial goals, it’s natural that as your income goes up, your expenses also go up. I once met a woman who was making $800,000 per year and living paycheck to paycheck, without investments toward any of her goals.
Every time you receive a raise or bonus, think about your financial goals and what you can do to invest in your future first. Then if there’s excess, you can spend it on that major purchase or vacation you had in mind.
It May Be Time To Hire Professionals
Ultimately, managing all the elements outlined in this article is possible on your own, but can be difficult and time-consuming. Consider engaging with the following professionals to support in the various aspects of your life:
- Outlining goals, creating a plan, budgeting, and investing: engage a qualified financial professional.
- Tax preparation and planning: engage a qualified Enrolled Agent or Certified Public Accountant.
- Assessing disability income options: engage a qualified insurance agent.
- Planning for incapacity or death: engage a qualified estate planning attorney.
Turning 40 as a single professional is not a deadline, but it is a valuable opportunity to pause, assess, and plan intentionally.
By understanding where you stand today, preparing for future transitions, and aligning your money with your goals, you can use your peak earning years to build greater flexibility, security, and independence for decades ahead.
This informational and educational article does not offer or constitute, and should not be relied upon as tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.
Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-9035315.1 (8/26)(exp. 8/30)