THE ULTIMATE GUIDE TO FINANCES IN YOUR 40sHOW TO MAKE YOUR MONEY WORK FOR YOU

TABLE OF CONTENTS

Strategically Save and Invest ........................................ 3

Balance Competing Priorities .......................................8

Take Your Retirement Saving to the Next Level 12

Think Carefully About Real Estate ............................ 15

Protect Your Family .........................................................18

Next Steps .......................................................................... 21

Checklist ............................................................................. 22

Appendix ........................................................................... 23

When you were in your 20s and 30s, your financial goals were probably simple: Save at least enough in your 401(k) to get the company match, build an emergency fund, pay down debt and, maybe, buy a home. You could figure out the rest—later.

Guess what? It’s later.

As you enter your 40s, managing your money becomes less about establishing a habit of saving and investing and more about developing financial strategies to meet your unique situation and goals.

This guide will show you how.

GET CLEAR ON YOUR GOALS

Your 40s are a time when life kicks into high gear.

Careers take off. Earnings grow. Kids keep you busy. Your parents are likely starting new chapters in their lives and may rely on you more than before. All of these competing priorities can really take a toll on you and your budget.

That's why now is the perfect time to make sure you're taking care of the basics and then take your finances to next level to meet your goals by being strategic about where you put your money.

Basics: Check your budget and keep spending under control, contribute to a retirement savings account, have an emergency fund, and pay down your debt.

Next level: Zero in on what you really want. Think about what you want to achieve 10, even 20, years from now. Ask yourself, "Am I spending money on my most important goals?"

Because what you want for your 50s and 60s will tell you what to do in your 40s.

Prioritize Your Goals and Be Specific

Know where your money is going with our Monthly Budget Worksheet.

Be clear on the goals you want to achieve with our Goal Setting Worksheet.

"I want to buy a small cabin in the mountains when I retire."

2

THE ULTIMATE GUIDE TO FINANCES IN YOUR 40s

STRATEGICALLY SAVE AND INVEST

Once you’ve identified your goals, determine how close you are to achieving them.

Strategically Save and Invest

Balance Competing Priorities

Take Retirement Saving to the Next Level

Think Carefully About Real Estate

Protect Your Family

Next Steps

Checklist

Appendix

3

Next 1 - 2 years

10+ years into

future

• Buying a TV • Replenishing an emergency savings fund

• Buying new furniture for the house • Buying a new car

• Purchasing a home

• Funding college tuition • Starting a business • Funding grandkids’ college

• Relocating

Safety is important. You want to know your money is accessible when you need it.

Safety is still important, but to reach these goals, you also need your money to work a little harder and grow for you.

Growth is critical since these goals are often themost expensive and most important. Starting nowand leveraging the power of time and compoundingmoney can help maximize growth.

Maximizing your savings is criticalto ensure you can fund a retirementthat may last more than 30 years.

Next 2 - 10 years

SHORT-TERM GOALS

LONG-TERM GOALS RETIREMENT

MID-TERM GOALS

STRATEGICALLY SAVE AND INVEST

HOW TO APPROACH GOALS-BASED INVESTING

Break your goals down two ways: by how much money you'll need and when you'll need it. This will allow you to be more strategic when choosing investment options.

Goals-based investing also allows you to more closely monitor progress and adjust your approach along the way.

4

HOW CLOSE ARE YOU TO REACHING YOUR GOALS?

It’s time for a gut check: Are you on track to achieve your goals?

Even if you’ve been diligent about saving the recommended 20 percent of your gross salary, it can be hard to measure your progress against specific goals—especially if you save mostly in one giant investment “bucket,” such as your 401(k) or a general savings account.

A good financial plan will map out all of your goals and should show you not only how you’re tracking to meet the goals, but also the options available to you if you’re short on meeting a goal.

STRATEGICALLY SAVE AND INVEST Go

al C

over

age

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%Retirement Summer Cottage College Funding

2/3

6 10

believe the American Dream is attainable.*

define the American Dream as:

Having a happy family life.

Being financially secure.*

The American Dream Is Alive and Well.

of U.S. Adults

IN

* Source: Northwestern Mutual Planning and Progress Study 2016

5

STRATEGICALLY SAVE AND INVEST

UNDERSTAND YOUR OPTIONS

Once you have your goals prioritized and understand the timeline ahead of you, the next step is figuring out where to allocate your money.

SHORT-TERM GOALSSavings Account, Money Market Account, Certificate of Deposit (CD)

MID TO LONG-TERM GOALSInvestments (stocks, bonds, mutual funds, etc.), 529s

RETIREMENT401(k), Roth, IRA, Annuity, Investments

Pros:• The risk of losing your

investment is relatively small.

• Money is liquid and easy to access.

• There's minimal impact to your overall taxation.

Pros:• These provide greater

opportunity for growth and to keep pace with inflation.

• Most accounts provide some liquidity, but money is typically intended for years into the future.

Pros:• Time and compounding returns

provide the best opportunity for growth.

• You get tax-deferred, tax-free growth, depending on the type of account (IRA, 401(K) or Roth).

Cons:• Returns on investment

are limited.

• Earnings won’t likely keep pace with inflation.

Cons:• There's a higher risk of losing

your investment.

• These require more knowledge of investing; you’ll likely need professional assistance.

Cons:• Funds are illiquid during working

years; penalties may be incurred for early withdraw.

• Certain accounts have required minimum distributions at age 70 ½.

Resource

What’s the Difference Between Saving and Investing?

57%think their version of the American Dream is different than their parents'.*

* Source: Northwestern Mutual Planning and Progress Study, 2016

of Americans

6

STRATEGICALLY SAVE AND INVEST

CHOOSE AN APPROACH: THE PROS AND CONS OF DIY, ROBO, ADVISOR

As you continue to invest for your future—and perhaps bucket your investments based on your priority goals—what will be your approach? Here’s a rundown of the major pros, cons and cost considerations of the three most popular investing options.

Pros Cons Cost

Do-It-Yourself Investing

• You have total control over your investment decisions.• It's easy to get started with low minimum funding values.

• It may require more time and expertise than you have.• You have to be disciplined during volatile markets.• You have to rebalance your own portfolio.

• Fees can run as low as $7 per trade.

Robo-Investing (Software that uses computer algorithms to design and manage your portfolio)

• It's easy. Open an online account, answer a few questions about your goals and risk tolerance, and your portfolio is automatically built.

• There's no overall plan that considers your whole financial picture.

• Low fees: Many are free for a year. After that, fees range from 0.25% to 1% annually.• Minimum balances may be required.

Investing With a Financial Advisor

• Personalized service: You'll get a comprehensive financial plan based on your circumstances and goals.• You'll develop a long-term, trusted relationship with your advisor.

• Not all advisors take a big-picture approach, taking into account your entire financial plan.• No two advisors are the same. Make sure you understand your advisor's experience and his or her fee schedule.

• Traditional advisors charge between 1% and 2% annually for their services.

79% of Americans

with incomes of $75,000 or more are invested in the stock market*

* Source: Gallup, Half of Americans Own Stocks, Matching Record Low, 2016

Want Help Reaching Your Investing Goals?

Focus on Process, Not Performance.

Reasons You Behave Irrationally When It Comes to Money.

7

BALANCE COMPETING PRIORITIES

In your 40s, you may feel like you’re being pulled in many directions. You’re not alone.

THE ULTIMATE GUIDE TO FINANCES IN YOUR 40s

Strategically Save and Invest

Balance Competing Priorities

Take Retirement Saving to the Next Level

Think Carefully About Real Estate

Protect Your Family

Next Steps

Checklist

Appendix

8

So many things can take place in your 40s—both in life and for your finances. Kids get older and more expensive. You might start caring for aging parents. Divorces. Second marriages. Corporate downsizing. A huge promotion.

To find balance among the many priorities that compete for your time and your money:

• Talk about your challenges. Involve your spouse, kids, friends and even your parents if they're affected. Ask for input about what's most important.

• Do a financial gut-check. For each priority, consider the impact to your current income and your long-term savings.

• Compare the trade-offs. Decide what you might be willing to say 'no' to, so you can say 'yes' to something else.

• Reflect on your goals. Make sure any decisions you make about whether or how to fund priorities tie back to your overall goals for the future.

Make the time to take these steps: You'll feel more confident about making important financial decisions.

BALANCE COMPETING PRIORITIES

Breaking Tradition: Planning Strategies for Today’s Family

A Financial Checklist for Going Through a Divorce

How to Teach Kids Priceless Money Management Skills

Resources

9

BALANCE COMPETING PRIORITIES

FINDING BALANCE: TAKING CARE OF OTHERS

You’re more likely than 40-somethings of previous generations to take time off work to take care of loved ones—children, aging parents or both.

And while you may choose to take that step based on your ability to meet monthly expenses on one salary, make sure you’re also considering some longer-term effects:

1. Loss of annual income and benefits

2. Loss of future income increases

3. Loss of retirement contributions and growth over time

4. Your ability to re-enter the workforce at a comparable position and salary

Let’s take a look at Luke, who’s 41. He makes $75,000 per year and is thinking about taking five years off to care for his daughter. Sarah, Luke’s wife, can cover their monthly bills with her salary.

What’s the longer-term financial impact?

The Cost of Leaving the Workforce

$137,100in retirement assets and benefits

$375,000in lost wages

Assumes $75,000 base salary for 5 years, 6% 401(k) contribution, 3% employer match and 6% annual rate of return. Five years of contributions with total balance after 27 years (retirement at 67).

10

FINDING BALANCE: AVOID PEER-PRESSURE PURCHASING

The pressure to “keep up with the Joneses” isn’t new, but social media elevates the pressure to a whole new level, and it can quickly derail your plans to balance competing priorities. One in seven (14 percent) people say they’ve posted about something specifically because it seemed fancy or expensive.

Every day, you’re bombarded with images of friends and family taking lavish vacations, eating at fancy restaurants or showing off their latest purchases. What you don't see is how those luxuries got funded and whether your friends and family have an emergency fund or retirement savings.

BALANCE COMPETING PRIORITIES

Average Debt in America, ValuePenguin 2016

The Facebook Factor

1 5 U.S. adults INwith social media accounts (21 percent) admit they are likely to choose an activity or make a purchase based on how their friends and family will view it when they share it on these social media platforms. Source: Keeping Up with the Joneses, AICPA 2016

11

TAKE YOUR RETIREMENT SAVING TO THE NEXT LEVEL

Although retirement may still be 20 years out, now's the time to take your saving to the next level.

THE ULTIMATE GUIDE TO FINANCES IN YOUR 40s

Strategically Save and Invest

Balance Competing Priorities

Take Retirement Saving to the Next Level

Think Carefully About Real Estate

Protect Your Family

Next Steps

Checklist

Appendix

12

$ $ $ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $

TAKE YOUR RETIREMENT SAVING TO THE NEXT LEVEL

WHY YOU SHOULD DIVERSIFY RETIREMENT ASSETS

Because no one has a crystal ball that tells you how markets will perform or what taxes will be like when you retire, having options allows you to be strategic about when and from where you withdraw your money.

Although you may be diligently saving in your 401(k), there's good reason to spread your retirement savings across a number of different vehicles.

The top of the graphic shows the assets you can build now for when you're retired. You control how much you put in today and how and when you access it in retirement. Once you’re retired, the cash reserve will typically hold about two years’ worth of cash created from the fixed sources, like Social Security, and from your savings buckets.

RetirementIncome

Cash Reserve

DeferredAnnuities Investments 401(k), IRA Roth Life

Insurance

Income Annuities

Social Security

Pension

Pre-retirementIncome

Taxes can have a big impact on your spending power.

401(k) Minus Taxes -25%*

Roth IRA/Roth 401(k) Tax Free

$1 MILLION

$750,000Neither type of account is better than the other; the key is to have a mix of both taxable and non-taxable assets.

*Hypothetical tax rate Utilizing the cash values through policy loans, surrenders of dividend values, or cash withdrawals will or could: reduce the death benefit; necessitate greater outlay than anticipated; or result in an unexpected taxable event.

13

AVOID COMMON RETIREMENT PLANNING MISTAKES

Beyond diversifying your retirement savings, be careful to avoid three common pitfalls:

1. Saving for your child’s college before your retirement. If you’re struggling to save for your own retirement while also saving for your child’s college, put yourself first. It’s much like the instructions given by flight attendants when you travel by air: In case of emergency, put your oxygen mask on first before helping your child.

2. Planning to work longer. Continuing to work—either full time or reduced hours—can be a great way to supplement your retirement income. But if you are working because you need the money, it may not be a choice for you. Surveys show that …

a. 60 percent of people plan to work in retirement.

b. But only 25 percent of retirees actually work.

3. Putting all of your retirement savings into a 401(k). It is possible to have too much of a good thing. Having all of your money in a taxable accounts reduces flexibility and potentially could bump you into a higher tax bracket in retirement.

TAKE YOUR RETIREMENT SAVING TO THE NEXT LEVEL

55%

21%

feel confident they will be able meet the cost of college*

are very confident about having enough money for a comfortable retirement**

of Parents

of Workers

- YET -

* Sally Mae, How America Saves for College Survey, 2016** EBRI Retirement Confidence Survey, 2016

Download our "Pros and Cons of Deferred Tax" White Paper

Putting Kids Before Yourself?

Retirement and Taxes: Should You Pay Now or Later

LIMRA: Retirement Confidence and Security, 2014

14

THINK CAREFULLY ABOUT REAL ESTATE

Whether you own a house, plan to purchase one or are considering the purchase of a second property, make sure you understand how owning real estate can impact your financial plan.

THE ULTIMATE GUIDE TO FINANCES IN YOUR 40s

Strategically Save and Invest

Balance Competing Priorities

Take Retirement Saving to the Next Level

Think Carefully About Real Estate

Protect Your Family

Next Steps

Checklist

Appendix

15

THINK CAREFULLY ABOUT REAL ESTATE

Principal Overpayment in Action EVALUATE YOUR CURRENT MORTGAGE

If you own your home, your mortgage is probably your biggest monthly expense. Would paying it down faster or refinancing the balance put you in a better position to achieve your other priorities?

Paying extra against the principal With just one extra mortgage payment per year, you can significantly reduce the amount of interest you’ll pay and the length of your loan.

Refinancing If your credit score has improved or rates have fallen since you got your mortgage, refinancing may lower your payment or shorten the length your loan.

Paying it off It might feel freeing to get the weight of a mortgage behind you. But you’ll also lose the interest tax deduction, and you also need to think about the opportunity to use the payoff money to fund other financial goals.

at (4%) with 20 years left:

Paying an extra

could save you 5 years on the term of your loan and over ...

$300,000 | 30-year mortgage

$325 per month

16

$29,600 in interest payments.

THINK CAREFULLY ABOUT REAL ESTATE

VACATION/RENTAL PROPERTY

If you’re thinking about purchasing a vacation property or rental property, there may be some tax deductions and income for your benefit. However, when real estate is not your primary residence, consider this:

• The full amount of property taxes and insurance are tax deductible only if you do not rent the residence.

• If renting your property is a goal, make sure your homeowners and condo associations allow it.

• Make sure you understand all of the tax laws1; renting for more than 14 days a year changes the rules on income reporting and deductions.

• Homeowner's insurance may be higher because you won’t be living there full time, which is considered a risk.2

• Think about who will manage the property if it’s not close to where you live, and budget

What the Vacation Property Owner “Looks Like”

• 49½: The age of the second property buyer• 1.4 years: Time vacation rental owners waited before renting • 18 weeks/year: The average vacation rental is booked*

* Source: HomeAway Vacation Rental Report, 2016

1 https://turbotax.intuit.com/tax-tools/tax-tips/Home-Ownership/Buying-a-Second-Home/INF12015.html

2 https://www.learnvest.com/2014/07/buying-a-second-home/

17

A solid financial plan should focus on protecting what you’ve built so far while also planning for the future. Lack of protection can put your entire plan at risk.

PROTECT YOUR FAMILYTHE ULTIMATE GUIDE TO FINANCES IN YOUR 40s

Strategically Save and Invest

Balance Competing Priorities

Take Retirement Saving to the Next Level

Think Carefully About Real Estate

Protect Your Family

Next Steps

Checklist

Appendix

18

PROTECT YOUR FAMILY

PROTECT WHAT YOU’VE BUILT AND ARE BUILDING

You’ve worked hard to get yourself and your family where they are today. Now, think about the goals that you have … they likely require money. And most goals are funded by your income, the biggest asset you have in your working years. Learn how to protect it.

FLEXIBLE OPTIONS WHILE YOU’RE LIVING

Many do not know about the flexibility that life insurance brings. In addition to the death benefit, your permanent life insurance can help:

Protect Your Growing Paycheck You probably have group disability coverage through your employer, and that’s a great start. But group plans may offer only a fraction of the benefit you need to protect your lifestyle. Evaluate your current coverage, and close any gaps with individual disability income insurance.

Revisit Your Life Insurance You may have some life insurance coverage, but have your life and needs changed since you purchased it? Review your coverage to make sure it’s right for what you want it to protect.

Utilizing the cash values through policy loans, surrenders of dividend values, or cash withdrawals will or could: reduce the death benefit; necessitate greater outlay than anticipated; or result in an unexpected taxable event.

Pay for a child’seducation

Make a downpayment

Fund a new orexisting business

Cover anemergency

EMERGENCY

Supplement yourretirement

Meet long-term

19

TAKING CARE OF YOURSELF AND LOVED ONES

Update Your Estate Plan: Make sure your estate plan is updated, even though it may not be top of mind. Take time to review your beneficiaries, will, trust and powers of attorney to make sure they are still appropriate, especially if you’ve:

• Gotten married, had kids or accumulated significant assets.

• Gone through a divorce or become widowed.

• Become part of a blended family.

• Received an inheritance.

• Started a business.

Plan for Long-Term Care: Most people will require care at some point in their lives. The first step in planning is to talk about it with your partner, parents, etc. Planning for care is especially important if you do not have children or family who may be able to help care for you. There are a number of care and funding options; learn about them and put the right plans in place for you and your family.

PROTECT YOUR FAMILY

Take Care of Those Who Matter Most

of workers report having to make alternative work arrangements as a result of caregiving.*

6 Steps For Every Estate Plan

60%

* Source: AARP, Caregiving in the U.S., 2015

20

Don't wait. Get started now!

Want a professional to help you? We’ll have a financial professional get in touch to help you get started on the right foot.

NEXT STEPS

As your career and your earnings reach new heights, and as your vision for the future becomes increasingly clear, fine-tune your goals and take meaningful steps to reach them.

Think about your goals. Ask yourself, “What can I do today to make them happen?” Don’t feel like you have to do everything all at once—or all on your own.

A financial professional can help you develop a plan to reach your goals.

• If you’re already working with a financial advisor, have him or her do a review to make sure you’re on the right track.

• And if you don’t have a plan (or are not yet working with a financial professional), we can help you take the next step.

TWICE AS LIKELY TO FEELFINANCIALLY SECURE

SAY THEY FEELHAPPY IN RETIREMENT

2x 8/10THOSE WHOWORK WITHAN ADVISOR

Source: Northwestern Mutual's 2015 Planning and Progress Study

21

22CHECKLIST

GOAL SETTING:

Identify 3-5 specific goals (and their costs) you hope to achieve in the next 10 years.

Understand if you are on track for retirement. If you don’t know, work with a financial professional to find out.

SAVING & INVESTING:

Compare what you have vs. what you need for each goal.

Identify what type of accounts you may need to meet your goals.

Understand what you can do today to better meet your retirement goals.

REAL ESTATE:

Take a closer look at your mortgage to see if paying it down faster or refinancing will help you reach your goals.

FAMILY AND PROTECTION:

Review your life and disability income insurance coverage to make sure it’s enough.

Talk with your loved ones about their plans for care.

Start thinking about your own longer-term care and what options you have.

Update (or create) your estate plan.

Get Help

You don’t have to do this alone. Northwestern Mutual’s financial professionals can help you see where you are today and create a personalized financial plan to help you achieve your goals for tomorrow.

THE ULTIMATE GUIDE TO FINANCE IN YOUR 40s

23APPENDIXGOAL SETTING

SET YOUR GOALS

To make your life goals come alive, they should be: ”SMART.”

S: SPECIFICYour goal should be detailed enough to know what you're hoping to achieve. “I want to take my parents on an Alaskan cruise vacation for their 50th anniversary in 10 years.”

M: MEASURABLEYour goals should be able to be tracked and measured. “I need to sock away $2,500 each year from now until 2027to pay for the trip.”

A: ACHIEVABLEYou should set goals that are realistic to achieve. “I have the money to save each month, or I’m prepared to adjust my budget and other priorities to achieve it.”

R: RELEVANTYour goals should have an important meaning to you. For example, "I want this trip to be an amazing experience for my parents." In this case, it’s creating anexperience and memories for your parents.

T: TIMELYYour goals should be linked to a speci�c time frame. For example, “The cruise needs to coincide with my parents’ 50th wedding anniversary, which is July 11, 2027.”

Use the table below to identify your top three to �ve personal/�nancial goals, the dollar amounts for each, time frames and the order of importance of accomplishing them.

GOAL $ AMOUNT TIMEFRAME PRIORITY

$

$

$

$

$

The �nal goal in this example: “In 10 years, I will have saved $25,000 in order to pay for my parent’s 50th anniversary gift, an Alaskan cruise.”

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. No investment strategy can guarantee a profit or protect against a loss.

This white paper is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, WI (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries. Northwestern Mutual Investment Services, LLC (NMIS) (securities), subsidiary of NM, registered investment adviser, broker-dealer, member FINRA and SIPC.

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