We've made it to the 40s in our running series on investing (if you missed it, check out previous posts for tips in your 20s and 30s), and, while some of the advice remains the same, you have a few more things on your plate at this age. Here's what you need to know:

Take Advantage of Your Situation

In most cases, 40 means you're a little more established in your career (but if you're not, don't worry. In this shaky economy, people are changing paths at 50, 60 and even 70 with a lot of success). You have a grip on your financial situation, whatever it may be, and probably some idea of your earning power in the future. That, as you can imagine, helps a great deal when it comes to your financial strategy.

"You've progressed through the post-college years of your 20s, the 30s where most people are starting a family, and by the time you're in your 40s, you're probably cash-flow positive, meaning your income exceeds your expenditures," says Eric Meermann, a certified financial planner and the client services manager at Palisades Hudson Financial Group in Scarsdale, N.Y. That allows you to shovel more and more money into retirement accounts. When you find more money in your pocket -- from a raise, a bonus, or paying off a debt like a car loan -- add it to the pot. Research shows that we automatically adjust to an increase in our income anyway, so why not make it work for you?

If you haven't quite gotten to this point yet, take a look at the leaks: Are you still paying off high-interest rate debt? Is your lifestyle more than you can afford? Go over your budget line by line and see where you can make cuts so more money is coming in than going out. Finally, an emergency fund is still important, no matter how secure you feel. At least six months of living expenses should be accessible in a savings or money market fund, in case you ever need it.

Start Envisioning the Future

Last week, we talked about using a calculator to figure out how much you need for retirement. At this point, you're probably a lot closer to knowing what you want that retirement to look like. Maybe you've found a job that you'd be happy working at well into your 60s and 70s, or you've decided that you'd rather pinch pennies now and completely relax later. You might have discovered a love for travel, or realized that you prefer staying closer to home.

All of these things will affect not only how much you need for retirement, but how your money should be invested. If you plan to continue working, you have a longer time horizon and you can get a bit more aggressive, says Meermann. If you want to retire early, it's all about saving now and managing your risk. And it goes without saying that extensive travel requires a bigger nut.

Double-Check Your Asset Allocation

This is a moving target, and you should check it about once a year, no matter how old you are. Shifts in the market can leave you too risky or too conservative, and as you age -- or events in your life unfold -- your risk tolerance may change. So you need to revisit your strategy and rebalance, which basically involves selling some winners and plowing those gains back into areas of your portfolio that haven't done quite as well. It sounds counterproductive (and painful) but it will actually help lock in your gains and make sure you're on track for the future.

Consider a Roth IRA Conversion

I wrote about this in detail not too long ago, so I'll direct you to that post for all the details. But I'll add that at this age, you may have switched jobs a few times, and it's likely you've rolled assets from a previous employer's 401(k) plan into an IRA. "If that money is still sitting there, you should definitely consider a Roth IRA conversion, especially because you still have a long time horizon to retirement age," explains Meermann. This year, anyone can convert a traditional IRA to a Roth, regardless of income.

Also in this series:
20s: Getting Started
30s: Boosting Your Health
50s: Getting Serious
60s+: Pacing Yourself

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You may find this video informative and helpful. It's about the basics of investing, in plain english. 100% free, not trying to sell a thing!


July 25 2011 at 4:18 PM Report abuse rate up rate down Reply

What future? Mounting student loans and debt, no quality jobs if any, no health care, the cost of everything is rising and we're living in a dying country. We're even building mosques at the World Trade Center to pay tribute to all mighty allah. And if you live in a police State like NYC, it's even worse. Tickets are handed out just for stepping outside your front door in the morning.Those who "come from money" will always be ok, they will always land on their feet. It's the way of things. But for the rest of the country, if there is any future, it's a dark one.

August 25 2010 at 9:56 AM Report abuse +1 rate up rate down Reply

I love how she says that at least 6 months of the living expenses should be in an emergency fund. What emergency fund? With what money? Our funds have expired since I have been unemployed. We yet to go out to dinner or camping to enjoy life. We live on bare necessities. There is no time for things that make us happy. I fear opening a 401-k since the economic decline, if I should ever get a job. The market is too volatile. I'd rather invest in it conservatively no matter how small the interest rate. Our financial accounts are constantly in the negative. We exhaust at least $ 200 in insufficient funds. If it wasn't for my federal credit unions debit protection covering this loss, homelessness would have been inevitable. Career interviews, no matter how qualified I am, feels more like a social visit. The smallest things such how far I live from potential employers or having a large corporate background vs. going into a smaller doctor's office are just examples of why I was not hired based on feedback. To this day, resumes and interviews I applied for 2 months ago are still on the job board and I have no clue why.

August 25 2010 at 7:55 AM Report abuse +4 rate up rate down Reply

Not all but many people today waste alot of money. Such as never turning off lights ect. I have always been taught to live beneath my means. And when you can save alittle it could add up to alot in the future. I do not plan to depend on social security. But if its there it is a suprise bonus. The market is and has always been too risky to consider. And banks will soon be so full of lack of trust. Anymore they pay you nothing on your money. The investments of the 80-90's of making money will never return.

August 25 2010 at 6:30 AM Report abuse +2 rate up rate down Reply

new wife who just got a big divorce settlement

August 25 2010 at 6:24 AM Report abuse rate up rate down Reply

The "Future" which is out of an investor's control, is constantly changing. 401Ks are being drained right now just to meet living expenses. Envision the reality of "NOW".

August 25 2010 at 1:16 AM Report abuse +4 rate up rate down Reply

The Roth IRA sounds good, but most people don't know that Congress does have the power to change or reverse the benefits of the Roth. Taken from Wikipedia: Congress may change the rules that currently allow for tax free withdrawal of Roth IRA contributions. Therefore, someone who contributes to a traditional IRA is guaranteed to realize an immediate tax benefit, whereas someone who contributes to a Roth IRA must wait for a number of years before realizing the tax benefit, and that person assumes the risk that the rules might be changed during the interim. On the other hand, taxing earnings on an account which were promised to be untaxed may be seen as a violation of contract - individuals contributing to a Roth account now may in fact be saving themselves from new, possibly higher income tax obligations in the future. Translated; this could mean they came up with the Roth because the Traditional was too much of a giveaway. At least with the Traditional you get a tax break that is known upfront. With the Roth, you never get it upfront and assume you will get one later. You would have to add what kind of financial benefits you get each year from traditional and then compare it to what could happen to the Roth; they will probably tax it something.

August 24 2010 at 8:59 PM Report abuse +1 rate up rate down Reply

It's not how much you make, it's how much you spend. If you find it hard to save, to start, when you write out your bills each month, take $40 ($10 a week if you can) and open a bank account 30 miles away from where you live and every month send them a $40. deposit, like a payment, if you get a raze, take 1/3 of that and add it to the deposit. You may ask, Why 30 miles? Because it's far enough away to be a pain to get to, unless you Really need the money. Then go over your budget and see what you can cut, Cell phones, cable TV, car payments, health clubs, eating out (lunch or dinner) all the time, buying junk you "want" but don't need. It all adds up fast. When you build up some cash, move over to CD's, shop for the best interest, it's low now, the best around is 2% to 3% and don't go longer then 24 months and then keep rolling them always looking for better interest. Don't go into stocks, bonds or mutual funs, unless you don't need the money and can sit on them for years, before you invest in any of them, Do Your Homework!

August 24 2010 at 6:50 PM Report abuse +4 rate up rate down Reply
2 replies to mrbjaw's comment

MRBJAW, you are right, it's how much you spend that is key. I'm 63, and took early SSI. My wife who is 55 has a part time job she enjoys. Because we have cut our expenses to the bone and have no credit card debt or car payments and we rent, we enjoy not being forced to get up and go to the rat race every morning. Our needs are met. The simple life is much better than a fully funded 401K and still having to work and paying for expensive things.

August 25 2010 at 1:57 AM Report abuse +5 rate up rate down Reply

If you get a raise, try changing your W-4 form and have part (maybe that 1/3) taken out before you see it. At tax time you will get a good refund and can maybe buy a Certificate of Deposit. Note: interest rates change on Tuesdays. Don't stop the $5, $10, or what ever you stash each week. BTW, do you (generic you) REALLY NEED that $4 cup of coffee each morning, even with flavoring. Will perked at home do; with flavored cream? I have switched to instant so I don't waste the rest of the pot.

August 25 2010 at 2:04 PM Report abuse rate up rate down Reply

I owe I owe so off to the job I go .. Kids education sadly killing the middle class I pay 2 grand a month to college education disgraceful..... I feel bad for my kids what future hold for them due to those irresponsible spending in Washington

August 24 2010 at 4:49 PM Report abuse +3 rate up rate down Reply

you may as well give it all to gov man.....he will take it in the end....

August 24 2010 at 4:44 PM Report abuse +2 rate up rate down Reply
1 reply to dterraman's comment

I thought this might be of interest to you as you say, might as well give it to the gov man..... President Obama's finance team is recommending a transaction tax. His plan is to sneak it in after the November election to keep it under the radar. This is a 1% tax on all transactions at any financial institution i. e. Banks, Credit Unions, etc.. Any deposit you make, or move around within your account, i. e. transfer to, will have a 1% tax charged. If your pay check or your social Security or whatever is direct deposit, 1% tax charged. If you hand carry a check in to deposit, 1% tax charged, If you take cash in to deposit, 1% tax charged.This is from the man who promised that if you make under $250,000 per year, you will not see one penny of new tax. Keep your eyes and ears open, you will be amazed at what you learn.

August 25 2010 at 12:44 AM Report abuse +1 rate up rate down Reply