Retirement Guide for People in Their 40s

July 9, 2021

Retirement planning is crucial for people in their 40s, yet many 40-somethings fail to plan for retirement. The State of American Retirement research study compiled by the Economic Policy Institute shows that the median retirement savings amount for investors between the ages of 38 and 50 averages out to around $5,200. Even though there are still at least 20 years remaining to save for retirement when you are in your 40s, that number is shockingly low.

man in his 40s

How Much Should I Have Saved?

There is no one-size-fits-all approach to retirement planning for people in their 40s. Fortunately, there are some quick guidelines to quickly estimate how much you’ll need to retire, including the 25x expenses rule or the 70% of rule. For a comprehensive answer, check out our answer to the question How Much Money Do I Need to Retire?.

If you’re in your 40s and have yet to reach your retirement savings factor, there is no need to worry excessively. There is still plenty of time to plan for your retirement, but you have to take action now.

Retirement Savings Steps to Take in Your 40s

There are many quick, easy ways for 40-somethings to plan for retirement. These include:

  1. Set Up a 401(k)

    A 401(k) is a qualified employer-established retirement savings plan that allows working individuals to defer a portion of their salary for retirement. 401(k) plans allow workers to defer taxes on a pre- or post-tax basis. Some employers will match an employee’s 401(k) plan contributions up to a certain percentage as well.

    If your employer offers a 401(k) option, now is a great time to take advantage of it. If your employer does matching funds, that’s free money for retirement, and it’s foolish not to take advantage of this program. Moreover, people in their 40s may want to fund their 401(k) up to $18,500, the maximum 401(k) contribution limit for individuals under the age of 50.

  2. Monitor Your Expenses

    When you’re in your 40s, it’s often a time of life filled with vibrant friendships, young families and career aspirations. The urge to buy a new car, more house than you need, or take a tropical vacation can be challenging to overcome. If you keep your spending in check, however, you will have more money to save for retirement.

    Use the money you save by making less elaborate purchases to fund a self-directed IRA if you max out a pre-tax employer-based 401(k) or 403(b). Set up automatic contributions to be taken from your checking account and deposited into the IRA each payday. Even if you can only spare $20 per paycheck, dollar-cost averaging and setting up automatic reinvestments will grow your retirement savings.

  3. Eliminate Debt

    Debt is a problem most 40-somethings want to avoid. If you allocate time and resources to analyze your outstanding debt, you can take the necessary steps to reduce or eliminate this issue.

    High-interest consumer debt can sometimes sabotage a person’s retirement savings. Thus, you should prioritize high-interest consumer debt and pay it down as much as possible. You can then move on to your mortgage and any other outstanding debt.

    By paying off outstanding debt now, you won’t have to worry about this debt when you retire. Best of all, as you eliminate outstanding debt from your ledger, you can use the money you’d otherwise spend to pay off various bills and add it to your retirement savings.

  4. Maintain Your Flexibility

    Even the best-laid retirement plans for people in their 40s might fail to materialize. Therefore, it is essential to maintain as much flexibility as possible as you plan for retirement. If your initial retirement plan fails to deliver the desired results, you’ll be able to change course quickly and minimize your losses.

    You should try to avoid putting all of your retirement eggs in a single basket, too. Instead, diversify your retirement portfolio to accumulate retirement savings from a variety of investments.

The Bottom Line on Retirement Planning in Your 40s

It may seem like retirement is in the distant future, even for people in their 40s. Recent data indicates most working Americans expect to retire at age 66, according to U.S. News & World Report.

Ultimately, it is never too early to start planning for retirement and developing an effective retirement plan is critical. Although retirement planning for people in their 40s may seem like a daunting task at first, many tools and resources are available to help get ready for retirement.

Start planning for retirement today to avoid the hassle of playing financial catch-up later in life. Prepare for retirement while you are still in your 40s, and you will have the necessary finances available to maintain a comfortable lifestyle in your later years.

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