Retirement planning becomes more important with every passing decade.
But the typical American’s earnings peak in their 40s, so it might seem like the perfect time to loosen the purse strings and splurge. Not so fast, says Chris Hogan, a financial expert and bestselling author.
In his 2016 book “Retire Inspired: It’s Not an Age, it’s a Financial Number,” Hogan says 40-somethings are often at a greater risk than other age groups of screwing up their retirement plans by falling into the “I deserve” trap as they look back on their accomplishments so far.
“You can lose sight of the plan and fall into stupid by buying a new car … or boat … or house,” writes Hogan, who has also studied the habits, strategies, and behaviors of thousands of self-made millionaires. “You might’ve behaved like this a little bit in your twenties, but that new toy you ‘deserved’ back then might have just been a new cell phone or a new computer. But by the time you hit your forties, the price tag on those toys has gone up quite a bit.”
This mindset can easily be disguised as an ordinary “midlife crisis,” Hogan says, but it’s really just plain “stupid.”
Your 40s are critical for retirement savings
The average 401(k) balance nearly doubles for Americans between age 35 and 54, according to Vanguard data. But it’s also one of the most expensive decades of life — a common time to raise a family, save for kids’ college education, and buy a home. Too many “I deserve” purchases can easily throw you off course, Hogan says.
“You aren’t just borrowing from the bank when you make these poor decisions; you are borrowing from your dream,” writes Hogan, who opposes taking on debt in any situation.
“You are living for the day instead of living in the day. The next time you are having one of those ‘I deserve’ moments, remember that you are only one choice away from knocking your great retirement down to a not-so-great retirement,” he writes.
That’s not to say you can’t make room for lifestyle upgrades and luxuries in life, but you have to strike a balance, he says.
“You definitely don’t want to borrow from American Express to take your kids on vacation — because that kind of vacation follows you home and shows up in your mailbox — but that doesn’t mean you can’t take a vacation,” Hogan writes.
“As we talk about having a game plan and saving for retirement, I am not asking you to stop living your life,” he says. “I want you to live your life while investing in your future! You absolutely can do both if you make a plan.”