The Big Retirement Savings Mistake to Avoid in Your 40s

I’ve never been particularly savvy when it comes to managing my money. I make a decent living, but still find myself in debt. Now that I’m in middle-age and have high school-age kids, I want to make sure they don’t fall into the same predicament. I’m wondering what some of the common financial mistakes are for people in their 40s like me. How can we be better parents in this regard? – Ben, Schaumburg, IL

Struggling with money in your 20s is par for the course. Making a few bone-headed decisions in your 30s? It’s a learning experience.

But falling behind at your age, though not uncommon, should be a wake-up call. The older we get, the less time we have to make up for past mistakes. It’s like sailing in the wrong direction; if you don’t right the vessel sooner or later, you’re not going to find yourself a long way from your port of call.

I reached out to three experienced financial professionals to get their thoughts on where 40-somethings most frequently slip up. Here’s what they had to say.

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1. Not Talking About Money With Your Kids

There’s a reason that a lot of adults like yourself never developed much financial acumen — it’s not exactly a focal point in the American educational system.

“Our schools do a great job of teaching STEM and English, but we don’t teach our kids about money,” says Christian Wagner, president of Penn Investment Advisors in Yardley, Pennsylvania. “That leads to a lot of problems.”And these are problems that could cost you in the future, because young adults who aren’t financially literate can overspend and under-invest.

Fewer than half the states require high schoolers to take even one economics course, and only 17 mandate that they take a class in personal finance. So it’s up to parents to pick up the slack.

It starts by teaching kids the value of a dollar. By the time they’re 5, you can start having them earn money around the house and pay for candy or LEGO sets at the store, says Shannon McLay, CEO of the Financial Gym, a New York City–based money coaching business.

“When they’re teens you can start discussing household and vacation budgets and how you create them,” she says. “If you really want to be open with them they can help you create the household budget or have them help you budget for the next family vacation.”

2. Failing to Think Critically About College

We’re taught from an early age that college is the ticket to success and a high-paying career. The part that’s left out: how much student debt can hamstring them for years after they earn their diploma.

Last year, the average college student graduated with nearly $30,000 in loans. With the dizzying pace of tuition increases, it’s not hard to imagine that figure creeping up even more by the time your kids reach college age.

Not everyone needs to go to an expensive university right off the bat, especially if they don’t know what career they want to pursue. “There are lots of ways to pay for higher education,” says Wagner. “The one that I think is the greatest is to go to a community college for two years,” says Wagner. “They’ll get the core courses they need anyway, and then they can move on to another school.”

Opting for a more affordable track can also relieve the burden for moms and dads, who often take on burdensome loans to help their kids get an elite education. “These parent loans have been the source of a lot of people’s problems,” says Wagner.

3. Putting College Savings Before Retirement

Yes, the cost of college in the U.S. is high — like, crazy high. But if your solution is to divert funds into a 529 at the expense of your own retirement account, you could be in for a lot of heartache down the road. “It’s a horrible mistake,” says Wagner. “I’ve never heard of a retirement loan, but I’ve certainly heard of a student loan.”

The better approach is to concentrate on your retirement accounts first, taking advantage of their long-term growth potential. Once you’ve hit your goals there, you can start fortifying their college account.

For some parents, it might make more sense to delay your financial assistance. “You can help them with paying off the debt after college if you want to contribute, but only if you feel prepared for retirement,” says McLay.

4. Keeping up With the Joneses

As parents, we like to give our kids the best, whether it’s the latest video game console or a whirlwind trip to Disneyland. But there’s a danger in conflating spending with happiness, and it’s a line of thinking that experts say too many adults sink into.

For Wagner, social pressures play a big role. “People get a fear of missing out,” he says. In order to keep up with the neighbors, there’s a tendency to pull out our wallet for big-ticket items regardless of whether or not you can afford them.

The irony is that spending money like a rap star usually doesn’t do a whole lot for your relationship. What it does lead to is a financial mess. “People are carrying way too much consumer debt,” says Wagner.

But it’s not only lavish vacations or expensive gadgetry that are stretching our budgets, says McLay. Often, it’s overdoing it with baseball leagues and camps that end up costing a boatload of cash. “You should have conversations with them and have them prioritize their favorite activities,” says McLay.

And it’s okay to have your kids pitch in, especially when they get a little older. “Your teen can help contribute for these, either by doing more chores at home or financially,” says McLay.

5. Going Into Debt for Your Cars

In our society, cars are as much a status symbol as a means of transportation. But there’s a price to be paid for borrowing huge sums to drive around in the latest Benz. Going for something more modest may not give you cachet – but it’ll certainly give you peace of mind.

The ideal is to create a strategy so you don’t have to borrow at all for your vehicles, says Michele Clark, an adviser with St. Louis–based Acropolis Investment Management. A married couple may start out with two car loans, she says. But when you pay off that debt, you should continue making those same-sized payments into a savings account.

You can then tap those funds to pay for any car repairs you need, and eventually use the rest for the down payment and sales taxes on the next car. “Earn interest saving for a car, rather than paying interest borrowing for a car,” says Clark.

6. Carrying Mortgages Into Retirement

It’s not uncommon to buy a larger house as your family grows or relocates. But you should always make it a goal to avoid mortgage debt by the time you retire, says Clark. As you buy new properties, make sure your home loan matures before your target retirement date.

As you build equity in your house, roll it into your next purchase, says Clark. If you find that you can’t afford the payments unless you stretch the duration of the loan, it’s a sure-fire sign that you bought a house beyond your budget.

7. Not Tracking Smaller Expenses

With mobile apps like You Need a Budget and Mint, there’s no excuse for parents not be documenting how much they spend each day – especially when they’re not swimming in money like Scrooge McDuck. And yet, many parents don’t. Clark says being aware of where your cash goes tends to keep you focused on more valuable outlays, like retirement savings and family outings, rather than impulse buys that you don’t really need.

Accountability is especially useful when it comes to eating out, one of the most common budget-busters. Clark has a tip to avoid restaurant-binging: Use your phone to make a note of meals you prepare at home. Each time you eat in and it’s a winner with the family, she says, grab your device and add it to your list of favorites.

“You can feed a family of four for $20 or less,” says Clark. “Going out to eat costs twice that, easily, and adds up.”