How Can I Grow My Wealth at 42 With $114K in a 401(k) and $1,400 in Credit-Card Debt?

Dear Quentin,

I'm 42 years old, married without children, and employed. At present, I reside at my in-laws' place rent-free, which suits them just fine. My financial portfolio includes $114,000 saved up in a 401(k), $1,400 of credit card debt, and $1,300 invested through an automated advisory service. Given this situation, how might I best enhance my finances? Although investment isn’t something I’m particularly well-versed in yet, I am actively learning more about it.

Willing to Learn

Related: I am a 59-year-old loner dealing with PTSD and without any family members still alive. My savings amount to $900,000. What would be the best way for me to allocate these funds?

Dear Willing,

The day after today is ideal for beginning your plans.

Having free housing can be great, but make sure you have a strategy. Should your partner be an only child, their parents might opt to transfer ownership of their property to them upon passing away, leading to a "step-up in basis." This means your partner would owe taxes based on the current market valuation instead of the initial buying cost. Otherwise, aim to eventually establish yourselves independently with your own residence.

On average, U.S. adults report They will require $1.46 million for a comfortable retirement. , marking a 15% rise from the $1.27 million recorded last year, as indicated by a recent report from Northwestern Mutual. This growth significantly exceeds the 2.6% inflation rate. Individuals' "magical figure" for their retirement nest egg has surged by 53%, climbing from the $951,000 aim that was cited by Americans back in 2020.

It's entirely feasible that you might amass that amount by the time you retire if you keep contributing to your 401(k) and receive an employer match. However, the average retirement savings for someone aged 65 to 74 stands at closer to $600,000 , according to Federal Reserve data, so try not to worry. (Please forgive me in advance since informing someone not to panic might have the opposite effect.)

I'm sharing all of this with you for background purposes—not to scare you. The aim here is simply to set these as objectives. Allow yourself room to pay off your credit card debt and prevent yourself from being charged over 20% interest annually on those funds due to the fact that maintaining a credit card balance means losing money each month. Afterward, concentrate on putting aside savings and investments, ensuring that you also build up an emergency fund.

What advantages do you have on your side? You understand the importance of saving for retirement, and you've accumulated over six figures in your 401(k), putting you close to the average retirement savings for someone your age (about $140,000). Additionally, you're married and splitting living costs, with just two people currently relying on your support.

You're on the path to retiring—and just being on this journey makes you among the luckier individuals. According to AARP, one out of every four adults aged over 50 doesn’t anticipate ever retiring. based on interviews with over 8,000 individuals working alongside the NORC Center for Public Affairs Research at the University of Chicago.

Avoid putting money into single stocks. Should you accumulate additional funds to invest, particularly during the most prosperous stages of your professional journey, consider exploring options for sustained expansion such as value-oriented and defensive sectors And the tech industry as well. Keep in mind: There’s always significant doubt and no promises. Participating in the stock market is a marathon, not a sprint.

Alternative investing vehicles

Health Savings Accounts (HSAs) are special savings accounts designed so that withdrawals made for approved medical costs are free from taxes. These funds can be used to lower your personal health care expenditures as well. HSAs serve as an avenue to accumulate resources toward future medical needs. medical nest egg ." In 2024, participants enrolled in a high-deductible health plan (HDHP) can contribute up to $4,150 annually to their Health Savings Account (HSA).

HSAs can serve as an effective tool for saving towards retirement thanks to their threefold tax benefit, according to Fidelity. They explain: "Contributions can be made before taxes or you may claim them as deductions if paid personally; investment gains within these accounts accumulate without taxation, and funds withdrawn for eligible healthcare costs are also exempt from taxes both currently and during your retirement."

In recent months, the Federal Reserve has begun lowering interest rates: Certificates of Deposit offer a set interest rate, whereas high-yield savings account rates can fluctuate according to the Fed’s key rate. Certain CDs do not impose any minimum deposit requirements or require as little as a few thousand dollars, while some demand a minimum deposit of $25,000.

The sooner you begin saving, the more advantageous it will be. Fidelity uses the example Of "Sarita," aged 25, who invests $7,000 annually in the stock market over a decade. By the time she reaches 67, her investment grows to an estimated $902,000. In contrast, "Chris" begins investing the same yearly sum at 35 and maintains this practice for 32 years until they turn 67, ending up with slightly less—approximately $825,500.

Fidelity advises, "Leverage time and the impact of compound growth." (Both your initial investment and the earnings from those funds generate income.) They add, "In terms of long-term savings, time acts as a potent ally. Starting early allows for more modest ongoing contributions due to the effect of compounding over an extended period."

Fidelity advises balancing growth with your risk tolerance: "Historically, over the long haul, stocks have yielded greater returns compared to bonds or cash. For individuals who still have several years until retirement, they possess the luxury of weathering fluctuations in the market. The possible compounded gains from stock investments could assist you in achieving your retirement objectives."

Congratulations on choosing a robo-advisor! These tools provide an affordable means to explore the stock market. Similar to their human creators, they aren’t infallible, yet they serve as solid foundations for grasping fundamental investment principles. Additionally, certain robo-advisors provide access to human experts offering tailored guidance. For further insights into the advantages and disadvantages of using robo-advisors, feel free to delve deeper into this topic. here .

Watch your objectives closely, and be cautious about that credit card debt.

Related: I certainly don't lead an extravagant lifestyle: I owe $68,000 in credit card debts and have $50,000 saved up in my 401(k). Given my annual income of $55,000, what steps should I take to climb out of this financial hole?

Feel free to send your financial and ethical queries via email to qfottrell@5.180.24.3 for The Moneyist, and follow Quentin Fottrell on X, which was previously called Twitter. Twitter.

The Moneyist regretfully states that he is unable to respond to individual inquiries.

Additional entries from Quentin Fottrell:

My spouse and I have been residing in this house for 17 years now. Is it time I should consider adding them to the property title?

“She is unmarried and earns a modest income”: I wish to provide my thirty-something daughter with $50,000 for her retirement savings. Could anything potentially go awry?

Is it equitable for us to share equal responsibility in funding our child’s higher education when my former spouse holds tenfold the wealth that I do?

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