Saving for retirement is something many of us do throughout our careers, and your 40s are a pivotal point in your planning. Time is still on your side—you’ve probably got a few more decades of work and enough time yet to build a solid financial foundation for a fulfilling retirement.
How much should you have saved for retirement by 40?
A good rule of thumb is that by the time you’re 40, you should have three times your annual salary saved for retirement. That amount should grow to roughly six times your salary by your 50th birthday.
These are general guidelines, but keep them in mind, especially when you’re at an age when you may have many
For example, you may be torn between putting money into your child’s college fund or your retirement savings. When you consider the retirement savings guidelines, it makes the most sense to
As your financial situation changes throughout your 40s, you can reassess your savings strategies to ensure that your retirement, your children’s futures, and your other priorities are on the right track.
And as long as you’re making progress with your retirement savings—no matter the size of your contributions—you’re far better off than not saving at all.
Planning for retirement in your 40s
One of the biggest factors that will indicate how much you should save for the future is how you envision your life in retirement, even if it’s many years away. Here are some important questions to consider:
- How many years are you planning for? There’s no way to know exactly how many years you’ll live in retirement, but making an estimate now could help ensure you don’t outlive your retirement savings.
- Where do you want to live? Maybe you want to purchase your dream home in retirement. Perhaps you want to downsize or move closer to family. Whatever your plan, the cost of living where you want to live is a crucial aspect of your retirement savings strategy.
- What passions do you want to pursue? Traveling the world, exploring or revisiting hobbies, leading mission trips with your church or donating more time and money to charities—retirement is your time, so don’t be afraid to dream big. It will help you build enough savings so you can turn your dreams into reality.
- How will you spend your money? Apart from the lifestyle your savings will support, be sure to factor in the more day-to-day costs like food, utilities, medical expenses, life and long-term care insurance, emergency savings and other important expenses.
- Do you and your spouse agree on a retirement vision? Your retirement plan should consider how your spouse or partner wants to retire. An
open and honest conversationto find common ground can help you understand if your combined savings efforts will be sufficient.
73% of respondents currently saving for retirement didn’t start seriously planning for retirement until between ages 30 and 40.
Ways to save for retirement in your 40s
You might feel concerned or overwhelmed if you haven’t made as much progress on your retirement planning as you'd hoped. And you’re not alone. The Retirement Readiness survey revealed that 73% of respondents currently saving for retirement didn’t start seriously planning for retirement until between ages 30 and 40.
The good news is you’ve still got time to work toward your goals. Here are some things you can do to boost your retirement savings in your 40s.
Take advantage of employer-sponsored retirement plans
Retirement plans through your employer are a terrific way to save and invest for retirement. Employer-sponsored plans most commonly include:
401(k)s: Offered by private for-profit businesses. 403(b)s: Offered by public sector nonprofit organizations, schools and churches. 457(b)s: Offered by state and local governments.
These types of plans can be especially advantageous if your employer offers matching contributions. Let’s say your employer offers a 3% match of your contributions. If you make $70,000 a year and divert 3% of your salary to your workplace plan, your account is getting a $2,100 boost each year.
Many employer-sponsored retirement plans have websites that show your progress toward retirement at your current contribution rate. If you're able, plug in different contribution rate scenarios to see the difference in your projected monthly retirement income. And if you aren't where you want to be, consider making an annual increase of the percentage of your salary you are contributing to the plan, especially when you receive an annual raise. Small, incremental changes can add up in the end.
Which type of plan to choose: Traditional or Roth?
Your employer-sponsored plan may offer you the choice between two versions: traditional and Roth.
1. Traditional 401(k), 403(b) & 457(b)
- If you are currently in your peak earning years and expect to be in a lower tax bracket when you retire, a traditional employer-sponsored plan can be a good option.
Like all other types of investments, these plans fall into an income tax bucket of either "tax now," "tax later" or "tax never." Traditional 401(k)s, 403(b)s and 457(b)s fit the "tax later" category. You contribute pre-tax dollars that grow on a tax-deferred basis. Then, when you start making withdrawals in retirement, that money is taxed as ordinary income.
These accounts also provide a tax break upfront by lowering the taxes you currently owe. This can put more money in your pocket now, which can be helpful in your 40s as you balance many priorities like mortgage payments and college savings for your kids.
2. Roth 401(k), 403(b) & 457(b)
- If you believe you still have peak earning years ahead and that you may be in higher tax bracket when you retire, a Roth account may make sense.
Roth accounts are considered "tax never" investments, since you contribute post-tax dollars. So they can be a smart choice if you expect to be in a higher tax bracket when you reach retirement. Why? Because it’s usually better to forgo a tax deduction on retirement contributions if it means tax-free withdrawals when you may be paying a higher rate later.
Individual retirement accounts (IRAs)
Traditional vs Roth IRA: What's the difference?
Traditional IRAsare "tax later" since they're funded with pre-tax dollars, so your withdrawals will be considered income and taxed in your retirement.1 This could work to your advantage because your withdrawals will be taxed at the bracket you’re in when you’re retired, and that could be lower than your current rate. Roth IRAsare "tax never" since they're funded by money that you've already paid taxes on, so once you’re in retirement, your withdrawals will be tax free.2 This could be a good option if you expect your income to continue to increase and there’s a likelihood that you’ll be in a higher tax bracket by the time you retire.
Combine multiple savings vehicles for a bigger impact
If you're eligible, it’s generally a good idea to have multiple savings vehicles, so you can maximize your savings efforts. In fact, Thrivent's Retirement Readiness Survey found that among those nearing retirement, 42% intend to rely on a mix of assets such as a 401(k), personal savings and IRAs.
For instance, if you have an employer-sponsored plan like a 401(k), you can contribute up to the match that your employer offers, and then max out your Roth IRA contributions to take advantage of its tax-deferred growth potential.
Among those nearing retirement, 42% intend to rely on a mix of assets such as a 401(k), personal savings and IRAs.
4 investing tips for in your 40s
There are several factors that go into building an investment strategy that fits your needs and wants.
1. Setting an appropriate risk tolerance
Younger investors tend to have a more aggressive approach that can have higher risks and rewards. Older investors often tend toward more conservative investments that provide steady returns.
If you’re in your 40s, you’ve still got a few decades until retirement, so taking on more risk isn’t necessarily a bad thing. If you lose money, you may still have time to build your savings back up.
2. Diversifying your investments
3. Compound interest: Putting time on your side
The more years you have to invest, the more growth-oriented you can be, thanks to
4. Take the emotion out of investing with dollar-cost averaging
Additional ways to boost your retirement savings
Creating savvy financial habits and adjusting how you think about and approach your finances can significantly strengthen your strategy. Here are a few simple steps you can take:
Use the “pay yourself first" method
It’s probably one of the easiest financial habits to adopt thanks to automation. When you set up automatic transfers you can:
- Ensure consistent contributions to your retirement, emergency or general savings accounts without having to think about it.
- Avoid the temptation to spend that money because it won’t even appear as part of your available funds.
- Increase the portion of each paycheck that goes toward your savings when you get a raise or want to be more aggressive with your savings strategy.
Reduce expenses that don’t add value
Are you spending money on things you don't need, no longer use or don't even realize you’re still paying for? Think of your subscriptions, gym memberships, streaming services or other expenses that automatically renew. Establishing
Start by looking at your credit card and bank statements to see if any purchases fall into this category. Many banks make this easy with online features that allow you to filter transactions for recurring charges. Identify anything you can cancel or downgrade.
And be sure to keep an eye out for
That doesn’t mean you shouldn’t enjoy a few splurges here and there, but it’s a good idea to consider how much you could put toward retirement savings when you earn that extra pay bump.
Make a plan to pay off debt
If you carry a revolving credit card balance or other high-interest debt, maintaining a budget is all the more important. When you’re not paying down your principal, your balances can linger, and that leaves less room in your budget to invest in your future. Having a solid plan to tackle those balances within a specific timeframe is one of the best steps you can take toward improving your financial outlook.
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Lay the groundwork for a fulfilling retirement
It's never too late to get serious about planning for retirement. Your 40s are a great time to assess your current state and get a solid plan in place to meet your goals.
You may find it helpful to lean on an expert who understands your values and your vision for life after full-time work. If you need a hand, a