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How to Save for Retirement in Your 40s


It’s increasingly common for workers to only start taking retirement seriously after age 40. A combination of stagnant wages and spiraling student debt has forced more and more households to put off retirement planning for years, if not decades. Whether you’ve got plenty set aside or are just getting started, your 40s are a great time to think seriously about retirement planning. Here are a few tips to help you along the way. Working with a financial advisor can also help you get serious about your plan for retirement.

Set Short-Term Targets

Saving for retirement is a little like losing weight: it’s a steady process of making short-term sacrifices that lead to long-term results. In both cases, one of the best tools is a set of well-established benchmarks. Instead of trying to save up $1 million, focus on reaching smaller savings goals that will eventually help you attain your million-dollar-goal.

Those are targets you can see and reach. Keeping defined, short-term targets let you turn a potentially overwhelming task into a manageable one.

For retirement savings, it’s particularly useful to set your benchmarks based on age. Fidelity estimates that you should save three times your salary by age 40. It’s okay if you aren’t there yet. That just gives you a number to shoot for.

If that number is high, then break it down a little bit. Don’t try to save up $210,000 all at once, just try to get $10,000 in your portfolio by saving $500 per month. Those are numbers you can manage.

Set Long-Term Goals

How to Save for Retirement in Your 40s

How much do you want to save?

Per Fidelity’s recommendations, most households should aim for 10 times their annual income in retirement savings by the time they retire. So, if you have a median household income of $70,000, you should be aiming for a $700,000 retirement account. As your earnings grow, your retirement targets should do the same. If you’re making $90,000 by age 50, then bump up your goals and your savings.

At any given time, though, your end goal will help you decide how much you should be investing today. Using tools like SmartAsset’s retirement calculator, you can work backward to figure out how much you’ll need to contribute in any given month to reach that finish line, and then make decisions around what you can and can’t realistically achieve.

Consider Opening An IRA or a Solo 401(k)

Your 40s are the sweet spot for retirement savings.

For most working adults, your 40s and 50s are the peak earning years of your career. You have hit your stride and are earning more than most people do in their early years. At the same time, you still have a very long working life ahead of you. For someone who retires at age 67, at age 40 you’re still in the first half of your career. You have almost 30 years left of earning and investing to build your retirement account.

This makes your 40s the best possible time for retirement savings. You have the peak combination of income and time for returns. For investors, this means that your 40s are the best possible time to maximize retirement contributions. If you have a W-2 employer, consider opening an IRA to supplement your 401(k) contributions. Indeed, you may want to consider opening a Roth IRA as well since these offer the strongest tax benefits. If you are self-employed, look into creating a solo 401(k) so that you can get the (much) larger tax benefits of an employer-based retirement fund.

In both cases, now’s the time to maximize your savings by rounding out all of your available retirement options.

Accelerate Savings in Taxable Accounts

How to Save for Retirement in Your 40s

As a corollary to the above, once you have maximized tax-advantaged retirement accounts, consider opening a dedicated taxable investment account.  While it won’t have the same benefits as a 401(k) or Roth IRA, a long-term investment portfolio in a taxable account is an excellent way to continue building wealth for the future.

Be Careful About Taking On New Debt

The other side of investing in your 40s is that this can also be a financially risky stage of life. This is especially true for millennials approaching their late 30s and early 40s. By now, you have likely paid off most of your student loans and have begun to earn higher salaries. This will give you the flexibility to begin making some of the large purchases that most young people have to defer. This will often include debt-based options like homes, cars and significant lines of credit.

Be careful.

This isn’t to say that you should continue to live like you’re still in your 20s. Go ahead and buy a car if you need one, and homeownership can be an excellent choice for the right household. Just be careful with this newfound flexibility. Don’t buy large assets simply because you can, avoid consumer credit if possible and spend below your means. For example, maybe consider buying a used car instead of a new one. Every dollar of new debt will erode your ability to save for retirement.

Start Now If You Haven’t

Having nothing saved for retirement by your 40s isn’t necessarily a doomsday scenario. But it’s time to seriously get started.

Starting to save for retirement in your 40s is an emotional problem as much as a financial one. The problem keeps getting bigger and, for many people, more embarrassing. So people put it off, which only makes the problem bigger and more difficult to acknowledge. It’s a vicious cycle.

All of this means that the first step is to stop putting it off. Face your 401(k), open an IRA and get started.

You will have to get aggressive to meet your goals, and it might take some serious budgeting. Even putting aside a few hundred dollars a month can make a huge difference at age 40, though. For example, with an average S&P 500 rate of return, someone who saves just $500 per month in an S&P 500 index fund could potentially meet (if not exceed) the median target of $700,000 by age 67.

This can be done, but it will take work and discipline.

Consider Asset Balancing

Finally, as you progress through your 40s, start considering your asset mix.

The general rule of retirement funds is to balance risk and reward against your time horizon. When you’re younger, you have more time to replace losses and let your portfolio recover. This means you can take a more aggressive, riskier approach to retirement savings. As you get older, though, replacing losses is more expensive and you have less time to wait for the market to bounce back. So you may want to shift toward safer, more stable assets.

For those with the wherewithal, this also can mean shifting toward income-based assets that will generate passive yields without having to draw down your portfolio’s principal.

Generally speaking, your 20s and 30s make up the higher-risk era for your portfolio. Your 50s and 60s are the time when derisking your portfolio becomes more important. Your 40s are when you should start seriously looking at how you want to make that transition and what you want it to look like.

Bottom Line

Your 40s can be a terrific time to plan for retirement. The combination of peak income and plenty of working years ahead means that it’s time to get serious about building wealth for your golden years. If you’re only just getting started, that’s okay. But starting the process and consistently saving from here on out is essential.

Retirement Tax Tips

  • Some states are more tax-friendly for retirees than others. We’ve crunched the numbers and evaluated each state based on how tax-friendly they are for people in their golden years. SmartAsset’s retirement tax friendliness tool can help you determine which state could be a good fit for you.
  • A financial advisor can help you plan for retirement and potentially offer tax advice.  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 interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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