Midlife Money Errors

By Dave Rao
Tuesday, June 18, 2019

If you are 40 to 60 years old, beware of these financial blunders and assumptions.

Mistakes happen, even for people who have some life experience under their belts. That said, retirement strategies are one area of life where you want to avoid having some fundamental misconceptions. These errors and suppositions are worth examining. See if you notice any of these behaviors or assumptions creeping into your financial life.


Dave Rao

Do you think you need to invest with more risk? If you are behind on retirement saving, you may find yourself wishing for a “silver bullet” investment or wishing you could allocate more of your portfolio to the hottest sectors or asset classes, in order to catch up. This impulse could backfire. The closer you get to retirement age, the fewer years you have to recoup investment losses. As you age, the argument for diversification and dialing down risk in your portfolio gets stronger. Diversification is an approach to help manage investment risk; however, it does not eliminate the risk.

Have you made saving for retirement a secondary priority? It should be a top priority, even if it becomes secondary for a while. Some put saving for their children’s college education first and saving for their retirement second. Your college-age students can apply for financial aid, but you cannot. Building a college fund ahead of your own retirement fund may leave you ill-prepared for your future.

Has paying off your home loan taken priority over paying off other debts? Owning your home free and clear is a great goal, but if that is what being debt free means to you, you may end up saddled with crippling consumer debt on the way toward that long-term objective. It is usually better to attack credit card debt first, thereby freeing up money you can use to invest, save for retirement and build a rainy day.

Have you taken a loan from your workplace retirement plan? If so, consider the following. You are drawing down your retirement savings — invested assets — which have the capability to grow and compound. You will probably repay the loan through deductions from your paycheck, cutting into your take-home pay. You will probably have to repay the full amount within five years — a term that may not be as long as you need. If you are fired or quit, the entire loan amount would likely have to be paid back by a deadline. If you cannot pay the entire amount back and you are younger than 59 1/2, the IRS will characterize the unsettled portion of the loan as a premature distribution from a qualified retirement plan, which makes it fully taxable income that is subject to early withdrawal penalties.

Is your emergency fund now too small? It should be growing gradually to suit your household, and your household may need much greater cash reserves in case of a crisis than it once did. If you have no real emergency fund, do what you can to build one now, so you don’t have to resort to a lender.

Watch out for these midlife money errors and assumptions. Some are made too casually. Review your investment and retirement savings efforts to help you recognize and steer clear of errors.


Dave B. Rao is the founder of RAO Wealth Partners. He focuses his practice on helping to advise physicians, corporate executives and business owners on their unique financial situations. For more info, visit: raowp.com.

Our firm does not render legal or tax advice. This article was written for our firm and provided courtesy of MarketingPro. Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Rao Wealth Partners is an independent firm with securities offered through Summit Brokerage Services Inc., member FINRA and SIPC. Advisory services are offered through Summit Financial Group Inc., a registered investment adviser. Summit is an independent broker-dealer with client assets held at First Clearing LLC (a wholly owned Wells Fargo subsidiary). Summit and its affiliates are under separate ownership from any other named entity.