Six Key Tips for Saving for Retirement in Your 40s

Saving for Retirement in Your 40s

Turning 40 is a major milestone in both life and retirement planning. With retirement on the horizon, it’s time to reflect on whether you’re on track. Are you planning a big trip, a career change, or a family move? The decisions you make now will shape your financial future.

While saving for retirement early in your career is important, you still have plenty of time to make great decisions and set yourself up for a comfortable retirement. In fact, of workers who are planning to retire in the next 10-20 years, many didn’t start planning for retirement until they were in their 40s.¹

Six retirement planning tips for people in their 40s

Regardless of where you are in your retirement journey, there are six steps you can take now to better understand your savings plan and improve your outcome.

1. Determine how you envision retirement.
   Before calculating how much you need to save, consider your lifestyle and retirement goals. Do you plan to travel, downsize your home, or make any big purchases? These choices will shape your savings strategy. 
   •    Meet with a financial advisor to better understand your unique retirement needs.
   •    Familiarize yourself with the basics of retirement planning.
   
   
2. Consult a financial advisor.
   If you haven’t reached out to a financial advisor, this is a great time to do so. Your financial advisor can help assess your retirement readiness and recommend changes to boost your retirement savings. 
   
   When meeting with a financial advisor, bring the following:
   
   •    401(k) and any other savings or investment account statements
   •    Mortgage, student loan, or other debt information
   •    Recent pay stubs for you and your spouse, if applicable
   •    Your most recent income tax return
   •    A list of other monthly costs and expenses
   
   Regular meetings with a financial advisor can help you determine the next steps in your retirement planning and stay on track.
   
   
3. Take advantage of employer-sponsored benefits. 
   Many employers offer 401(k) or IRA plans that allow you to contribute money from your paycheck and withdraw it in retirement. Between the time you make the contribution and its withdrawal date, the money can earn interest. With more than ten years left before reaching full retirement age, your contributions to a 401(k) or IRA will help you build a more secure financial future. 
   
   Many employers will also make contributions on your behalf, either through a company match or profit sharing. A company match requires you make contributions while profit sharing is funded without any contribution on your end. 
   
   •    If you’re not yet contributing, start now to take advantage of compound interest.
   •    Maximize employer contributions to boost your retirement savings.
   
   
4. Evaluate the costs of your lifestyle.
   Your 40s are a good time to take a look at the costs of your living situation and evaluate where you’d like to be long-term. Do you plan to keep your home, or relocate in retirement? The plans you make now may change, but discussing your options with your spouse or a financial advisor can help you feel prepared. 
   
   Consider how much of your current income you’ll need in retirement. Factor in day-to-day expenses, home costs, and recreation—like hobbies, dining out, and vacations—to create a budget for your retirement goals.
   
   
5. Explore potential tax benefits of pre-tax and Roth contributions.
   When saving in a 401(k) or IRA, you may have the option to choose between pre-tax and Roth (or post-tax) contributions. 
   
   •    Pre-tax contributions reduce your taxable  income now, but withdrawals  in retirement are taxed.
   •    Roth contributions are made after you’ve paid taxes, so withdraws in retirement are tax-free.²  
   
   Consider your tax bracket now versus what you expect in retirement. In other words, making more Roth contributions at your potentially more affordable rate today can help you avoid a higher tax rate down the road. However, if you think you’ll fall into a lower tax bracket in retirement, making more tax deferred contributions to your 401(k) or IRA may better serve your goals. 
   
   If you have questions about how to split your contributions between pre-tax and Roth, consult a financial advisor or tax professional.
   
   
6. Focus on healthy lifestyle changes.
   Maintaining good health can significantly reduce medical costs in retirement. Eating healthy foods, staying active, and regular doctor visits can help decrease your financial stress in retirement. And when you do reach retirement, your health will allow you to enjoy it to the fullest.

Retirement planning tips for each decade of your life

Your 40s are a crucial time to define your retirement goals. It’s never too late to start saving for a more secure financial future, and the earlier you start planning, the better your retirement can be.

Check out these additional educational resources and tools for retirement planning tips and ideas at every stage of life.