Coping with the Challenges of Portfolio Building in Middle Age

Female middle-aged adult in her living room

Middle-aged adults have significantly different risks and impediments toward retirement planning and wealth building. Acknowledging and adapting to the unique challenges of investing during mid-life is an excellent way to secure your investment and retirement portfolios. A middle age brings with it an assortment of challenges to the new and old investor alike.

The best time to invest was yesterday, a popular truism holds. Indeed, young people are constantly being told to set aside something to leverage the power of compound interest in their retirement. The long time horizon is the biggest advantage as it gives young investors a considerable amount of risk tolerance once they’ve set aside enough money for long-term investing.

However, things may change in the interim, and middle-aged adults might find themselves worrying about the state of their financial situations. Some adults may find it daunting to start an investment portfolio and retirement fund due to the mounting risks involved. Even adults who have already invested earlier in life may find that their risk profiles aren’t what they used to be.

There are plenty of options for middle-aged Americans to buffer against the risks that loom just over the horizon.

Tax efficiency

The first thing all adults must do regardless of their age is to manage their tax burdens. Too often, many Americans pay more tax than they ought to, causing them to lose money that should be going to investments and retirement funds.

Middle-aged adults should take advantage of the local laws in their area to optimize their tax plans while working to counteract tax burdens placed elsewhere. States like Utah, for instance, have taxes on social security but also offer an income tax credit for retirees, which can be useful later in life. Talk to a seasoned accountant and financial adviser to help devise a viable plan for tax efficiency.

Combat lifestyle creep

As adults age, their lifestyles often change with them. This is understandable to an extent as they start and grow their families and their costs of living increase. Many middle-aged adults today, however, may be living well beyond their means. The so-called “lifestyle creep” is often experienced by many people reaching middle age who start pining for status symbols like new cars and fancier homes.

Left unabated, these frivolities may draw money away from savings and investments and may even lead to further financial issues down the line.

Middle-aged adults with families should carefully weigh each of their major decisions and avoid or delay purchasing anything frivolous. Until they’ve ensured that they’re saving enough to meet their retirement goals, they should consider cutting back on non-essentials and instead focus on more important expenses. Paying down longstanding debts should also be a top priority.

Expand investments

For middle-aged adults, the window of opportunity to take advantage of competitive time buffer for risky investment is rapidly shrinking.  However, they may still leverage the time they do have by optimizing their portfolio for maximum returns.

Individuals who have already begun investing, meanwhile, may want to re-examine their portfolios and review their current allocation strategy. One of the most common mistakes faced by investors is putting their eggs in one basket; a portfolio skewed toward one asset is bound to underperform even in the best of circumstances, and investing in only one asset type is a risky proposition in and of itself.

Plan for the inevitable

Woman saving and calculating money

As uncomfortable as it is to think about, the inevitability of old age and death have a significant impact on the lives of one’s heirs. Middle-aged parents should start making the preparations for both their retirement pensions and, if possible, their retirement plans and wills as early as the present.  These plans do not need to be final, however, and they can be changed and altered over time.