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How much should you have saved for retirement by 40?

Laughing couple putting away groceries in kitchen
Thomas Barwick/Getty Images

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.

A Retirement Readiness survey* by Thrivent found that adults who have a strong retirement plan are four times more likely to achieve some or all of their goals than those who did minimal planning. You’ve probably got an idea of how you want to live in retirement, but do you have a plan to turn that idea into reality? Here’s how you can make wise financial decisions in your 40s to further your progress toward your retirement goals.

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.

It's ideal to have 3 times your annual salary saved by the time you're 40. That increases to 5-6 times your salary by age 50.

These are general guidelines, but keep them in mind, especially when you’re at an age when you may have many competing financial priorities.

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 add that money to your savings. There are student loans, financial aid, scholarships and other strategies to help pay for college, but there’s no such thing as a retirement loan.

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 conversation to find common ground can help you understand if your combined savings efforts will be sufficient.

Thrivent’s retirement income planning calculator can help you get a better idea of how you can save the right amount for the lifestyle you envision. It can help you understand where you are now and identify if you’re on track.

73% of respondents currently saving for retirement didn’t start seriously planning for retirement until between ages 30 and 40.
Thrivent Retirement Readiness Survey

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)

Consider an IRA if don’t have access to an employer-sponsored plan or want to supplement your employer’s plan with another savings program.

Traditional vs Roth IRA: What's the difference?

Traditional IRA
Get a tax break on contributions now; pay taxes on withdrawals later
Roth IRA
Funded with after-tax contributions so no immediate tax break; qualified withdrawals later are tax-free

  • Traditional IRAs are "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 IRAs are "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.
Thrivent Retirement Readiness Survey

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

Understanding your risk tolerance is crucial to making smart investment decisions. You need to know how much money you’re willing to lose with any given investment.

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

Diversification can help reduce your risk.3 A portfolio containing different investment products is less likely to result in large losses than a limited portfolio that’s over-exposed to one company or industry. Diversification also helps with market fluctuations. If one investment experiences a significant loss, you’ll have other investments that could help offset the negative impact.

3. Compound interest: Putting time on your side

The more years you have to invest, the more growth-oriented you can be, thanks to compound interest. Compound interest is the interest you earn on interest. So not only do you earn interest on your contribution to your retirement account, you also earn interest on the accumulated interest. This can help you reach your financial goals faster.

4. Take the emotion out of investing with dollar-cost averaging

With dollar-cost averaging, you invest a fixed amount of money at regular intervals rather than a significant amount of money all at once.4 As the market fluctuates, your regular investments might go up or down, but the overall cost of your investment will average out and potentially save you money on your investments.

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:  

Heart with dollar sign
Pay yourself first
Checklist with calculator
Reduce expenses that don't add value
Family sitting at table
Make plan to pay off debt

Use the “pay yourself first" method

The pay yourself first method is simple: You make contributions to your accounts, like retirement savings, as soon as each paycheck lands in your bank account.

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 a budget can bring clarity to your overall spending habits and identify those unnecessary costs.

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 lifestyle inflation, which can occur when your discretionary expenses keep rising as your income increases.

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.

Get debt management tips: 7 actions to take today to help pay your debt

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 Thrivent financial advisor can discuss your goals and help you build a solid foundation for your future needs.

*Methodology: This research was conducted in June 2022 among a national sample of 1,500 adults in order to measure their sentiments, financial planning, knowledge, and issues regarding retirement. The interviews were conducted online and the data was broken into three sample groups; Saving, Nearing, and Retired. Results from the full survey have a margin of error of plus or minus 3 percentage points

1For 2023, your contribution deduction is reduced if MAGI is between $73,000 and $83,000 on a single return and $116,000 and $136,000 on a joint return. If you're married filing jointly and an active participant in an employer sponsored retirement plan and your spouse is not, the deduction for your spouse's contribution is phased out if MAGI is between $218,000 and $228,000. For 2024, your contribution deduction is reduced if MAGI is between $77,000 and $87,000 on a single return and $123,000 and $143,000 on a joint return. If you're married filing jointly and an active participant in an employer sponsored retirement plan and your spouse is not, the deduction for your spouse's contribution is phased out if MAGI is between $230,000 and $240,000. If you're a married taxpayer who files separately, consult your tax advisor.

2Distributions of earnings are tax free as long as your Roth IRA is at least five years old and one of the following requirements is met: (1) you are at least age 59½; (2) you are disabled; (3) you are purchasing your first home ($10,000 lifetime maximum); or (4) the money is being paid to a beneficiary.

3 While diversification can help reduce market risk, it does not eliminate it. Diversification does not assure a profit or protect against loss in a declining market.

4 Dollar cost averaging does not ensure a profit, nor does it protect against losses in a declining market. Because dollar cost averaging involves continuous investing, investors should consider their long-term ability to continue to make purchases through periods of low price levels and varying economic periods.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.