As individuals reach the age of 40, their financial strategies may need to evolve to align with changing goals and life circumstances. Many traditional financial rules, while still relevant, may no longer apply effectively. Here are three key areas where financial adjustments might be warranted:
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Investment Allocation: A common guideline suggests subtracting one’s age from 100 to determine stock allocation. For example, a 40-year-old would traditionally allocate 60% of their portfolio to stocks. However, experts argue this rule is outdated. Given rising living costs and healthcare needs, maintaining a greater portion of growth-oriented assets may be crucial. Each individual’s financial objectives—such as buying property or supporting family—differ, necessitating a more personalized strategy. Consulting a financial advisor can be beneficial.
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Home Equity Utilization: Traditionally, experts warn against borrowing against home equity for non-essential expenses due to the inherent risks, such as foreclosure. However, tapping into home equity through options like a home equity line of credit (HELOC) can also serve as a strategic income source in retirement. Each situation warrants careful evaluation to determine if this route is advisable.
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Social Security Benefits Timing: Many advise delaying Social Security benefits to maximize monthly payouts. Yet, this approach may not suit everyone. For individuals with a family history of shorter lifespans or those in poor health, claiming benefits earlier could be more financially prudent. Additionally, couples may strategize differently based on earning differences to ensure adequate income.
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