Approaching your 40s can be a tumultuous period, marked by emotional ups and downs that may tempt you to spend impulsively, putting your retirement nest egg at risk. While the stereotypical midlife crisis involves extravagant purchases and major life changes,
the reality is more nuanced, affecting both men and women. Milestones like turning 40 or becoming an empty nester can trigger uncertainty about life and future plans, inﬂuencing spending behaviors.
“Feelings drive behaviors,” notes Nathan Astle, a ﬁnancial therapist in Kansas City, Mo. If dissatisfaction creeps in, it may manifest in various ways – from revamping your wardrobe to opting for cosmetic procedures or splurging on exciting but costly
experiences like travel. While occasional treats aren’t harmful, the timing of a midlife crisis coinciding with the need to secure your retirement warrants careful consideration.
Financial therapist Ashley Agnew emphasizes the importance of prioritizing time over timing when it comes to investing for retirement. Starting early and consistently contributing to your retirement savings signiﬁcantly impacts the outcome. Delaying or
shortening the period can have a lasting effect on your ﬁnancial well-being, as illustrated by the example of a 6 percent return on investment over 40 years versus 30 years.
As the shadow of retirement looms closer, impulsive ﬁnancial decisions may signal a full-blown midlife crisis. Financial adviser Marti Awad highlights red ﬂags, including
tapping into your 401(k) or borrowing against your home for non-essential purchases. Running up credit card debt or hiding expenses can further indicate ﬁnancial distress.
However, spending during a midlife crisis is often viewed as a solution rather than a problem, as it temporarily boosts mood.
To prevent a midlife crisis from derailing your ﬁnancial goals, consider implementing the following safeguards:
Beware of Lifestyle Creep
With increasing age and experience often comes higher income. Paco de Leon, author of “Finance for the People,” notes that people typically enter their highest earning years in their 40s and 50s. However, this higher income can lead to lifestyle creep, where
expenses rise in tandem with income. Setting ﬁnancial boundaries and investing extra income in your retirement account can help counteract this phenomenon.
Trick Your Brain: Use a ‘Buy List’
Impulse spending during a midlife crisis can be curbed by creating a “buy list.” Writing down desired items and imagining the purchase can provide a dopamine rush similar to actual spending. After two weeks, if the desire persists, assess the potential impact on your ﬁnancial stability. Recognize that seemingly small expenditures can accumulate over time, affecting your long-term ﬁnancial health.
‘Stress Test’ Your Bank Account
Before making signiﬁcant purchases, such as a dream vacation, review your retirement plan. Financial planners can run a “stress test” to analyze the impact of the expense on your nest egg. Assessing potential returns and risks can help you make informed decisions that align with your ﬁnancial goals.
Financial mishaps can be daunting, but seeking help is crucial. Overcoming shame associated with overspending is the ﬁrst step. Financial therapists, fee-only ﬁnancial planners, and credit counseling services can provide valuable assistance in regaining ﬁnancial stability.
In navigating the midlife crossroads, taking small steps to correct ﬁnancial mistakes can go a long way. Share your experiences and tips on overcoming midlife ﬁnancial challenges in our forum – how did you secure your retirement during this pivotal period?