Keeping a Midlife Crisis From Wrecking Your Retirement Plan

The midlife crisis is easy to poke fun at — especially if it’s someone else’s.

The stereotype, as portrayed in movies and on TV, is familiar: A middle-aged man has a meltdown upon turning 40 and ditches his wife for a younger woman and a sports car. Or maybe just the car.

In real life, though, a midlife crisis is rarely so obvious or dramatic, or the sole province of men. Milestones like a 40th or 50th birthday, or becoming an empty nester, can provoke uncertainty about your life and your future. And this uncertainty can influence the way you spend.

“Feelings drive behaviors,” said Nathan Astle, a financial therapist in Kansas City, Mo. If you feel dissatisfied with your life, you might buy a new wardrobe or spend on cosmetic procedures. Or if you’re seeking excitement, you might splurge on big-ticket items like travel or expensive wine.

Of course, there’s no harm in the occasional treat, especially when you budget for the expense. The trouble is, a midlife crisis can hit just as retirement is becoming more real. So if you’re going to treat yourself, you should also make sure your retirement savings and investments are on track, experts say.

When it comes to investing, time is more important than “timing,” said Ashley Agnew, a financial therapist. In other words, saving for retirement early in life matters more than entering the market when stock prices are low and exiting when they’re high.

For example, with a 6 percent return, an investment of $5,000 each year (for 40 years) will grow to more than $800,000 by the time you’re 65, Ms. Agnew said. But if you invest the same amount of money for 30 years, you’ll have $400,000.

As the runway to retirement gets shorter, there’s less time to save. “Short-term thinking can have a long-term impact,” Ms. Agnew said.

Marti Awad, a financial adviser in Denver, said signs that a midlife crisis might be in full swing include pulling money from your 401(k) or individual retirement account, or borrowing against your home for purchases that are wants, not needs. Running up credit card debt or hiding purchases from loved ones are also warning signals.

But because shopping often boosts mood (even temporarily), spending isn’t seen as a problem — it’s mistaken for a solution, Mr. Astle said. So it’s important to come up with a plan before an issue brews. To prevent a midlife crisis from throwing off your financial goals, consider these safeguards.

If you are fortunate enough to be consistently employed over the years, income usually rises with age and experience.

A 2022 survey conducted by the U.S. Census Bureau found that the median household income for people ages 45 to 54 was $101,500 per year, compared with $80,240 for those 25 to 34.

“Typically, people enter their highest earning years in their 40s and 50s,” said Paco de Leon, author of the book “Finance for the People.” With higher income, you may be able to afford more expensive restaurants, fancier vacations or a bigger home.

Buying these things, however, can unleash a phenomenon called lifestyle creep, which is when your expenses rise with your income.

“It’s a slippery slope,” Ms. de Leon said. For example, if you earn $80,000 a year and your salary increases by 3 percent, a few extra expenditures like dinners and weekend getaways — not to mention inflation — can quickly eat up your additional money.

Even a one-time splurge can be precarious, Ms. de Leon warned. If you buy designer shoes, for instance, you may decide that your wardrobe looks drab. Or if you order a hand-woven rug, your Ikea furniture may seem dated. This mind-set can make former luxuries seem like necessities, causing you to spend more.

To prevent lifestyle creep, try setting financial boundaries. For example, if your salary goes up, invest the extra income in your retirement account. If that’s not possible, try following a general piece of financial advice, which is to put 20 percent of your raise in savings. And if you receive a yearly bonus, spend a small amount of it, and invest the rest, Ms. de Leon advised.

A midlife crisis can unleash a “here and now” mentality about money, Ms. Agnew said. And this can make you more vulnerable to impulse spending.

To prevent this, Ms. de Leon recommends creating what she calls a buy list. Write down everything you want and imagine yourself buying the items, she said.

Like scrolling on social media or drinking alcohol, shopping provides a dopamine rush. The buy list, however, can “trick your brain” into thinking you’ve spent the money, she said, providing the same reward.

If two weeks pass and you still want the item, think through the downsides before you do anything. Ms. de Leon suggests answering this question: “Will this put me in a more financially fragile position?”

Just like eating too much doesn’t cause weight gain immediately, spending a little extra may not hurt your bank account right away — but it’s important to calculate the long-term cost.

For example, parting with an extra $50 each week becomes $200 by the month’s end. If you’re a decade away from retirement and keep up that pace, you’ll have spent $24,000 by the time you retire.

As we get older, unforeseen expenses can balloon. Health care costs may rise and caring for sick family members can come with greater financial burdens. When saving for retirement, don’t forget to take these potential costs into account, Ms. de Leon said.

If you’re considering a major expense, like a dream vacation on a milestone birthday, Ms. Awad suggests reviewing your retirement plan first. Financial planners have software that can run a “stress test” to analyze the effect of the purchase, she said.

A stress test runs different return scenarios, revealing the inherent risk in your financial choices, Ms. Awad said. Seeing the range of potential returns can help you determine if your nest egg can weather the spend.

Financial mishaps can be embarrassing, which can prevent you from taking action. “Shame is the enemy of change,” Mr. Astle said. Therefore, if you’ve overspent, don’t be afraid to reach out for help.

For example, if stress fueled your splurge, a financial therapist could teach you healthier ways to handle your emotions. Being able to name your feelings can help you respond differently, he said.

If pulling money from your 401(k) hurt your financial health, meeting with a fee-only financial planner could help you get back on track. And if you’ve run up credit card debt, a professional can create a plan to help you pay it off. If you’re in need of low-cost or free credit counseling or budget management, there are resources at the Financial Counseling Association of America and the National Foundation for Credit Counseling; the foundation offers free courses.

Even if your savings have taken a hit, the results of money missteps are rarely set in stone. “Taking small steps to correct your mistakes goes a long way,” Mr. Astle said.

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