4 ways to start retirement savings in your 40s


4 ways to start retirement savings in your 40s

Your 40s are a busy time of life. You likely have growing children, a mortgage and countless other obligations. As a result, saving for retirement in your 40s feels more like a wishful hope than thoughtful action. You’re not alone, 80 percent of those in their 40s are behind on their retirement savings.

It’s easy to see this and think hope is lost. Yes, urgency is needed when saving for retirement in your 40s, but with planned purpose, you still have time to grow your nest egg.

Take Advantage of Opportunities

For many in their 40s, life is full of obligations. It’s also filled with opportunities. It’s important to take advantage of those opportunities if you want to make the most of this important decade of your life.

One key opportunity is your income. Many enter their peak earning years in their 40s, and they begin to plateau by the end of the decade. Depending on your field you may also see peak earning years in your early 50s, but the point remains you likely will never make more than you do now.

You can use this opportunity to your advantage in a number of ways, such as:

  • Max out your employer-sponsored 401(k) plan. You can contribute up to $18,000 per year, and an additional $6,000 catch up if you’re over 50.
  • Max out a Traditional or Roth IRA. You can contribute up to $5,500 per year, and an additional $1,000 catch up if you’re over 50.
  • Max out a Health Savings Account (HSA) if you have access to one. You can contribute up to $3,400 if you’re single, or $6,750 per year if you’re married. HSAs also have the same $1,000 catch-up contribution if you’re over 50. Healthcare costs are typically the largest expense for many retirees, so it’s important not to overlook this opportunity.

You may find other opportunities specific to your situation. Make sure to take advantage of them to accelerate retirement planning in your 40s.

Find Money for Retirement

Just as important as finding opportunities to grow your money in your 40s, is a focus on curbing your spending – especially if you have high-interest debt. Key in curbing spending is determining where your money goes each month. “Saving for retirement can be difficult if you don’t have a spending plan or have some debt to deal with,” says Clint Hodgdon, CFP®, CRPC®, BFA®, Director of Financial Products and Advice at BrightPeak Financial.

Creating a spending plan helps you track your spending, which enables you to see your spending habits and identify opportunities to cut back. Each dollar you trim is an extra dollar that can go towards retirement planning.

Hodgdon reiterates the importance of tracking your spending, “Before you begin saving, you should learn more about where you are spending money. This allows you to identify areas where you can reduce spending, which creates the opportunity to save.”

Lastly, as you evaluate your spending, grow your emergency fund to handle major expenses, so you won’t have to add debt in the event that something unexpected occurs.

Balancing Retirement with College Needs

Saving for retirement vs. saving for college is a common predicament for many parents. You likely feel that extensively in your 40s. Saving for the college needs of your children is important, but it’s also important to keep in mind your pressing retirement needs.

The last thing you want to do is save for their college needs to the detriment of your retirement needs as that may put a burden on your children later in life. “Most parents would like to help their kids with the cost of education. However, your children will likely have the opportunity to borrow for education expenses. Retirees are not able to borrow money to fund retirement,” says Hodgdon, pointing out the importance of finding balance between the two needs.

This doesn’t mean you shouldn’t save for college needs. Instead, look for ways to start in small amounts and involve your children as they grow to find cost-efficient ways to make college more affordable.

Don’t Go Into it Blind

Retirement may seem far off when you are in your 40s. The fact remains that it will be here sooner than you think. Having a quantifiable plan is vital to enjoying your retirement years.

Rather than simply throwing a dart at a board, determine what you will need to have the retirement you want. Ask yourself some of the following questions:

  • Where do I plan on living?
  • Do I plan on working while in retirement?
  • What will my family members need?
  • What sources of income will I have?

You may have other questions, but this will provide a good start. If you’ve not done so, it’s important to establish a will and ascertain insurance needs as they’re both part of your retirement picture.

Don’t be afraid to involve a financial planner in this process. They can help you establish a plan to guide you throughout the rest of your professional career.

Saving for retirement in your 40s requires some urgency. With a little work, you can still use time to your advantage.

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