Women in Their 40s Are in Their Peak Earning Years: 5 Ways To Maximize This Paycheck
Written by
Gabrielle Olya
Edited by
Gary Dudak
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If you’re a woman in your 40s, you may currently be earning the most you ever will. According to a 2019 PayScale study, women reach their peak earnings at 44, earning on average $66,700. Men, meanwhile, reach their peak earnings at 55, earning on average $101,200.
While it’s disappointing that there is such a staggering difference in women’s and men’s peak salaries, there are still ways that women can make the most of their highest-earning years.
In this “Financially Savvy Female” column, we’re chatting with Chevonne Farler, wealth management advisor at TBH Advisors, about how women in their 40s can maximize their paychecks for the short- and long-term. Plus, how women can continue increasing their earnings past their 40s.
What are the best ways for women to take financial advantage of their peak earning years?
Invest aggressively: While balancing risk tolerance, consider allocating more funds to growth-oriented investments like stocks and real estate during your peak earning years. This can potentially yield higher returns over the long term.
[Remember that] different types of accounts have different time horizons. Retirement accounts shouldn’t be assessed until you are in your 70s, 80s or 90s — truly, the last third of your life. In your 40s, these accounts should be invested aggressively with a growth focus because they have at least 30 years to grow. Accounts that may be tapped sooner than 30 years from now would be invested slightly more conservatively in nature because they will be assessed sooner.
Maximize retirement contributions: Prioritize contributing the maximum allowed to tax-advantaged accounts, like 401(k) [plans], IRAs and HSAs (if eligible). The maximum contribution for 401(k) [plans] for those in their 40s is $23,000 in 2024. If contributing $23,000 is not financially realistic, we encourage clients to do the maximum amount their monthly budget will allow. Also, as you receive raises, increase the percentage going into 401(k) [plans] proportionately until reaching the maximum eligible amount.
At a minimum, budget to contribute enough to be eligible for the maximum employer match. Employer matches are critical for compounding 401(k) balances very quickly.
Pay down high-interest debt: Eliminate high-interest debts like credit cards or personal loans to free up cashflow for savings and investments. If you have multiple credit cards, organize your credit card debts into two categories: lowest balance and highest interest rates.
If you have any zero-interest promotional credit cards, don’t wait until the last month to pay them off. [For example, if the promotional period lasts] for 18 months, spread out your payments over 15 months.
In regards to other cards, pay all minimum balances. Second, any amount over the minimum balance should go towards the one with the lowest balance with the highest interest rate. Pay it down first. Once it is paid off, roll that payment to the next lowest balance with the highest interest rate. Once the second lowest balance with the highest interest rate is paid off, roll that entire payment to the third, and so forth. Basically, snowball your payments over time.
Invest with a long-term perspective: Allocate savings towards diversified investment portfolios aligned with your specific financial goals, objectives and risk tolerance. Understand that risk tolerance is how much you can “stomach” the ups and downs — the volatility — of the market.
Negotiate your salary: You deserve to be paid your worth! Do your research on comparable salaries and confidently ask for a raise during that promotion review. Highlight your achievements and the value you bring to the table.
What steps can women take to secure their financial future while they are making the most money?
Build an emergency fund: At a minimum, have six months of living expenses earmarked as an emergency fund to cover unexpected costs without derailing financial goals. I typically recommend closer to 12 months for a married couple with W-2 employment. However, six months is a good place to start.
If one of the spouses is self-employed, I recommend closer to two years of living expenses. This may or may not be in a regular savings account. It may contain short-term CDs, U.S. Treasuries or liquid money market funds — it just depends on the client.
The timeframe of up to two years is important. As an example, think back to 2020. Some people, like musicians and entertainers, and people in the event planning or tourist industry, were unable to work and tour for longer than six months. The ones who had sufficient emergency funds were able to absorb the loss in income for those months.
In your 40s, you may be [part of the] “sandwich generation,” raising children and taking care of aging parents at the same time. What if your parent/child or yourself became sick and you had to take time off from work? You need an emergency fund to be able to absorb when these situations arise.
Review and update beneficiary designations: Ensure life insurance, retirement accounts and other assets are directed to desired beneficiaries. Review regularly as personal circumstances change. Too often, I see clients who failed to update beneficiaries from their parents to their new spouse after getting married, or forgetting to change beneficiaries from wife No. 1 to wife No. 2 after a divorce. Beneficiary designations are critical to ensure that the money flows the way you intend at your death.
Also, verify that any other legal documents, like power of attorney, living wills, etc., are all up to date. I usually recommend reviewing these documents every five to seven years as family dynamics change.
Explore long-term care options: Research long-term care insurance. There comes a point in time, roughly in your late 50s or early 60s, when you should be actively thinking about what life looks like when you are no longer able to take care of yourself. For some clients, buying long-term care insurance and moving some of the burden onto insurance companies can potentially make sense. For other clients, planning to be self-insured and paying for all needs themselves can potentially make sense. It truly depends on your situation.
Seek professional financial advice: Many times, women don’t think they need a financial advisor because they think, “I’m not wealthy,” or, “I don’t have any money.” This is an incorrect perspective. A professional will be honest with you about where you are currently on your financial journey and the best next steps. Most fee-based advisors will offer a complimentary first session. There are also many financial advisors, like me, who are passionate about helping women create and implement a plan that works for them.
Your 40s are pretty early to reach your earnings peak. What steps can women take to continue to increase their earnings through their retirement or near-retirement years?
Level up your skills: The world is constantly changing, so stay ahead of the curve. Invest in yourself through professional development, certifications or online courses. Become the ultimate go-to expert in your field.
Lead the way: Ready to climb the corporate ladder? Advocate for promotions and seek leadership roles with increased responsibility and earning potential. Remember, you deserve a seat at the table.
Network like a butterfly: Expand your professional circle by attending industry events and joining relevant organizations. Building connections can open doors to exciting opportunities. Remember, your network is your net worth.
If there isn’t a networking group that fits what you are looking for, find two to three other women who approach their respective industries the same way you do, and start your own. Each of you can invite 10 movers and shakers to a meet and greet — and you just expanded your network by 30 people!
Consider starting your own business: Do you have a burning business idea? Entrepreneurship might be your path to ultimate control and earning potential. Just remember to assess the risks carefully and seek guidance before taking the leap. Talk over your idea with your financial advisor. Research if it makes financial sense and what the potential financial consequences or returns could be.
Become a consultant: Feeling the entrepreneurial itch but want more flexibility? You are an expert in your industry. You can market those skill sets by being a consultant. Research market rates, negotiate confidently and enjoy the freedom of being your own boss.
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