savings

6 tips for financial planning in your 40s

Make your own retirement plans
Make your own retirement plans © Monkey Business Images/Shutterstock.com

In addition to saving for retirement at work, Merrill Lynch's Corey recommends making the maximum allowable contributions to a traditional individual retirement account or a Roth IRA, depending on your income.

"The amount you can contribute to a Roth or a traditional IRA went up to $5,500 in 2013 for people in their 40s," Corey says. "The difference between them is that with a Roth IRA, you pay taxes now on your contributions, but you avoid a potentially higher tax later. If you think tax rates are going up, like I do, then a Roth IRA may make more sense."

Traditional IRA contributions are not limited by income, but Roth IRAs are only available to married couples with an adjusted gross income of less than $188,000 and single filers with an adjusted gross income of less than $127,000 in 2013.

"At 40, retirement seems very far away, but it is so important to contribute the maximum you can to retirement savings," says Corey. "If you'll be living on $80,000 per year when you're retired, you'll need $2 million in assets. I wouldn't include Social Security benefits in your planning if you're in your 40s, either because it may not be available or it will be means-tested."

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