Mid-career: Managing money doesn’t get easier with age

Workers often hit their peak earning years only to be pulled in several directions. Beyond basic expenses there may be college-age kids or aging parents who need financial help. It can be a lot to balance at a time when retirement savings should take on more importance.

The problem is many fall prey to the myth that they can juggle it all month-to-month, on the fly.

“What happens with the tens of thousands of consumers we talk with every month is they’ve gotten into the habit of bad habits,” says Mike Croxson, president of CareOne, a debt counseling company. “They don’t have a plan anymore.”

This often happens to workers in their 30s to early 50s. As life gets busy, they pay bills on auto-pilot and pay little attention to long-term financial planning.

Here are five money myths to avoid as potential pitfalls during your peak earning years:

Myth 1. Prepare for emergencies before paying down credit card debt

It’s wisest to pay down high-interest credit cards before you save for a rainy day. “You have to look at where you get the best bang for the buck,” says Carlo Panaccione, a financial planner at Navigation Group Inc. in Redwood Shores, Calif.

You’d be better off paying down a $5,000 credit card balance charging you 14 percent than socking away that amount in a bank earning less than 2 percent.

If you’re concerned about an inadequate emergency fund, you should be. But recognize that if you start paying down debt, you can still charge most expenses if a problem arises.

To manage your debt, use these basic guidelines. Start with your monthly gross income — before payroll deductions and taxes. Your housing expense shouldn’t exceed 28 percent of that amount. If you then add revolving debt, such as credit cards and car loans, the amount shouldn’t exceed 36 percent. If it does by much, you really need to focus on shedding some debt.

Myth 2: Forget about asking for a raise until the economy recovers

Lean and mean. After the recession it’s become common to hear about companies operating with minimal staff. While worker productivity is up — they’re working harder after staff cuts — they’re not getting paid much more. Personal income grew 3 percent in 2009 after falling 1.7 percent in 2008. Typically, personal income grows around 5 percent to 6 percent a year.

If you think you deserve a raise or a promotion you’ll need to show why it’s deserved. When you make the request, address the new skills or expanded roll you’ve taken on; or the additional responsibilities you’re willing to tackle.

Then demonstrate what you’ve accomplished and why it’s in the company’s interest to give you a raise. Tell the boss how you’ve made an impact, such as boosting sales or landing a new client.

Myth 3: I’m a renter and don’t own that much, so I don’t need a will

Estimates vary but it’s probably generous to say that about a third of all Americans have a will. “Everybody absolutely needs a will,” says Peter Lang, an adviser with HighTower Securities, who specializes in estate planning. Without a will, the state will decide who gets your assets.

It’s unpleasant to think about your own death, which is one reason why many people don’t prepare. But having a will ensures your possessions are distributed according to your wishes, and helps avoid familydisputes.

The process also encourages you to think about other matters that might otherwise be put off, such as a durable power of attorney. This document gives another person the right to manage your affairs if you’re unable.

The headlines “Retire Rich” and “Retire Early” have been retired. The 2008 stock market meltdown has left a lingering impact. Workers with 401(k) accounts saw their balances cut by about a third on average. Now many remain anxious and it hasn’t helped that their balances have only recently rebounded to their levels at the market’s peak in 2007.

So now many are contemplating working longer. Slumping home values and the weak economy has added five years of work for the average employee, says Brandon Ross, managing partner of Peak Capital Investments Services, a financial adviser.

What’s more, collecting Social Security later increases the benefit. Avoid if you can, the permanent reduction in benefits if you retire early. If you were born in 1960 or later and you claim your benefits at 62 instead of the full retirement age of 67, you reduce your monthly benefit by 30 percent. A $1,000 benefit, for example, is reduced to $700.

Beyond savings, make sure you’re also evaluating your anticipated expenses. That includes major items such as health care, possibly in a nursing home or through an in-home nursing service.

The Center for Retirement Research at Boston College has shown that a worker retiring in 2020 will need about $142,000 to cover just out-of-pocket health care costs in retirement.

Myth 5: I’m healthy and don’t need life insurance

Life insurance isn’t for you it’s for your loved ones. Buying insurance often depends on whether you have financial obligations you want covered after you’re gone. For young people term life insurance is inexpensive and will help cover funeral expenses and pay off debts. This is also a good option for single people to cover the basics. It’s purchased for a specific time period so when it ends, you need another policy.

Mid-career workers should consider a permanent policy such as a universal life or whole life policy, which allows the buyer to continue to pay premiums to keep the policy in force on a continual basis.