Email FacebookTwitterMenu burgerClose thin

Estimating How Much to Save for Retirement at 40


By age 40, you should have a clear plan for retirement savings. The first step is to evaluate your current savings and projected retirement needs. Experts often recommend aiming to have three times your annual salary saved by this age. This ensures a solid foundation as you continue to build your nest egg. You’ll also need to consider your future living expenses, including housing, healthcare and lifestyle choices. Adjusting for inflation, estimate the amount you’ll need annually in retirement. Financial advisors can help you create a personalized plan that factors these costs so that you don’t underestimate your needs.

Factors to Consider When Estimating Retirement Savings

Estimating how much you’ll need for retirement can be complex, but understanding key factors that will impact those needs can help you create a sustainable savings plan. Here are 10 general things that you should consider when creating an estimate:

  • Current age and retirement age: The number of years you have until retirement impacts how much you need to save. The longer the time horizon, the more you can benefit from compound interest.
  • Life expectancy: Estimate your life expectancy based on family history and health. Planning for a longer retirement ensures you won’t outlive your savings.
  • Current savings: Assess your current retirement savings. This includes 401(k) accounts, IRAs and other investments earmarked for retirement.
  • Annual income: Your current and projected annual income helps determine how much you can afford to save each year. Higher incomes generally allow for higher savings rates.
  • Desired retirement lifestyle: The lifestyle you envision in retirement greatly influences your savings needs. Consider travel plans, hobbies, and other activities that might require additional funds.
  • Inflation rate: Factor in the average inflation rate to ensure your savings maintain their purchasing power over time. Historical inflation rates can provide a reasonable estimate.
  • Expected rate of return: The return on your investments affects how much your savings will grow. Conservative estimates ensure a more realistic savings goal.
  • Healthcare costs: Anticipate future healthcare expenses, including insurance premiums, out-of-pocket costs and long-term care. Healthcare costs often increase with age.
  • Debt and financial obligations: Consider any existing debts and financial responsibilities, such as mortgage payments, that will affect your savings capacity.

Consulting with a financial advisor can provide personalized guidance, ensuring that you are on track to meet your retirement objectives.

Average Retirement Savings at 40

A couple reviewing their retirement savings goals.

Reaching age 40 often prompts a reassessment of financial goals, especially concerning retirement savings. According to Vanguard’s “How America Saves 2024” report, the average retirement savings for individuals between the ages of 35 – 44 is approximately $91,281. This figure provides a useful benchmark, though personal savings goals may vary widely based on individual circumstances and retirement aspirations.

If your retirement savings are below this average, it’s crucial to recognize the need for accelerated savings. Many financial advisors recommend having at least three times your annual salary saved by the age of 40. This rule of thumb helps ensure you are on track to maintain your standard of living throughout retirement. Falling short of this benchmark indicates the necessity of increasing your savings rate or reevaluating your investment strategies.

Effective investment strategies are also vital in growing your retirement nest egg. Diversifying your portfolio and seeking higher returns through a mix of stocks, bonds and other assets can provide the growth needed to reach your retirement goals. Consulting with a financial advisor can offer tailored investment advice, ensuring your strategies align with your risk tolerance and time horizon.

How to Estimate What to Save Now

Determining how much to save for retirement requires an analysis of your current savings and projected needs. Start by evaluating your existing retirement accounts, including 401(k)s, IRAs and other investments. Knowing your current savings balance provides a foundation for calculating future contributions.

Next, outline your retirement goals. Consider the lifestyle you envision, including travel, hobbies, and other activities. Estimate your annual expenses in retirement, adjusting for inflation and potential healthcare costs. Financial experts suggest aiming to replace about 70-80% of your pre-retirement income to maintain your standard of living.

Once you have a clear picture of your retirement goals and current savings, calculate the gap between what you have and what you’ll need. Use retirement calculators or consult with a financial advisor to determine how much you should save annually. If there is a significant gap, you may need to increase your savings rate.

Bottom Line

A couple estimating how much more they will need to save before retirement.

Estimating how much to save for retirement at 40 requires a careful analysis of your current savings, future expenses and desired retirement lifestyle. By aiming to have three times your annual salary saved and considering factors such as inflation, investment returns, and healthcare costs, you can create a realistic savings plan. Increasing contributions to retirement accounts, diversifying investments and periodically reviewing your financial strategy are crucial steps to stay on track.

Tips for Retirement Planning

  • A financial advisor has the expertise needed to help you reach your long-term retirement goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • To help you estimate how much you need to save for retirement at any time, consider using this free retirement calculator.

Photo credit: © Wackerhausen, ©, ©