No retirement savings at 40? Here's a comprehensive guide (2024)

If you’re starting to save for retirement at 40, that’s not ideal, but it’s also far from being too late.

While the standard advice is to begin stashing away money for retirement in your early 20s, that’s not what most people do, as it turns out.

According to an annual report published by investment management company Vanguard, the median balance Americans aged 35 to 44 had saved in Vanguard retirement plans was $28,318 in 2022.

That means if you have no retirement savings at 40, or perhaps haven’t made a concerted effort to start saving, you’re really not that far behind your peers.

Is it too late to save for retirement at 40?

If you’re wondering how to save for retirement in your 40s, avoid making the mistake of thinking you’ll never retire and you’ll just keep working until your last day on earth.

That’s an unlikely scenario.

Instead, start planning and taking proactive measures.

While it may not seem like you have a long time until you hit retirement, it’s still crucial to maximize your contributions to an employer-sponsored retirement plan, such as a 401(k) or 403(b), as soon as possible.

“At 40, you still have about 20 to 25 years until retirement, which is a considerable amount of time to grow your investments,” says Taylor Kovar, CEO at Kovar Wealth Management in Lufkin, Texas.

“Your investment mix should be a balance between growth-oriented investments and some conservative options to protect against market downturns,” he says. “A significant portion of your portfolio should be in stocks or stock mutual funds.”

Kovar suggests considering index funds or exchange-traded funds (ETFs), two types of pooled investment vehicles, for broad market exposure with lower fees.

“Be honest about your risk tolerance,” he says. “At 40, you might not have the same risk capacity as someone in their 20s, but you still need some growth to ensure your savings last.”

Also, catch-up contributions are a great idea for investors over age 50. The idea behind catch-up contributions is exactly what the name suggests: You can juice up your retirement savings even if you got a late start.

While your time horizon is shorter if you start investing after 40, you can jump-start your retirement investing by using disciplined budgeting, minimizing debt and maximizing the amount you salt away regularly.

Understanding the need for retirement savings at 40

At 40, you’re approaching the midpoint of your working life, which is a wake-up call that it’s time to start prioritizing your financial future.

If you’re currently 40, your full Social Security retirement age is 67, so you have plenty of time left in the workforce.

But financial responsibilities for many people peak in their 40s and 50s, as children’s college expenses take precedence over other saving and spending categories. That means you may want to consider less expensive vacations for a while, and maybe keep that car an extra few years.

Cutting back on lifestyle doesn’t sound great, but there’s a way to look at the bright side: Starting your retirement savings at 40 allows you to take more risk with stocks than you would if you started a decade later. Your future self will thank you for starting now, instead of waiting another 10 years.

How to kickstart your retirement savings at 40

Kickstarting portfolio growth at 40 requires a very focused approach.

Many financial advisors suggest a more aggressive allocation for those with a longer time horizon and higher risk tolerance. Some might even recommend an 80/20 stock/bond split, or even a stock-heavy 90/10 allocation, at age 40.

But if you’re nervous about market ups and downs and find that you don’t sleep well if, for example, your portfolio is showing a big drop during a bear market, you may want a more conservative allocation.

Whatever the mix, it’s important to diversify using asset classes like stocks, fixed-income securities and alternatives, such as real estate or even commodities.

Another tried-and-true plan is to use tax-advantaged retirement accounts, such as 401(k)s or individual retirement accounts (IRAs) to maximize your contributions.

How much should you save?

If you’re starting at 40, you’re playing a bit of catch-up versus the person who began saving for retirement at 30. That means you’ll have to put away more than you might want to, given the commonly accepted advice that you should try to accumulate and set aside at least three times your annual salary in retirement savings by age 40.

But remember, you’re likely not as far behind as you might think. According to Vanguard’s “How America Saves 2023” report, only 16% of retirement plan participants aged 35 to 44 contributed the maximum allowed amount in 2022.

Late starters can begin to catch up by maximizing contributions to tax-advantaged retirement accounts and being diligent about saving.

Maximizing 401(k)s and IRAs to save for retirement

If you’re saving for retirement at 40, maximizing retirement savings through 401(k)s and IRAs is a critical step.

Michael Nemes, financial advisor at Nemes Rush Family Wealth Management in Novi, Michigan, says paying attention to your tax bracket is crucial.

“If you’re in your 40s, your income is hopefully going to be increasing in the future as you move towards retirement,” he says.

That means your tax bracket may be lower now than it will be in the future.

“Take advantage of the lower tax bracket now by utilizing the Roth feature of your 401(k), if your plan offers one,” he says.

The Roth feature, which is offered as part of most retirement plans these days, means that you pay tax on the contributions now so your investment earnings and any qualified distributions are tax-free, he adds.

Contribute the maximum you’re allowed to your employer-sponsored 401(k), taking advantage of an employer match, if it’s offered. The employer match is essentially free money, so it’s a good idea to take your employer up on that benefit.

If you work at a non-profit or government agency, you may have a similar qualified retirement plan, such as a 403(b) or 457(b).

If you’ve maxed out your employer-sponsored plan, you can save extra money with an IRA, which also allows for tax-advantaged savings.

After you turn 50, you can maximize those qualified accounts with catch-up contributions.

Don’t forget to regularly review and adjust your investment allocations. One big mistake many investors make is just setting and forgetting their 401(k)s, resulting in declines as some funds outperform others. It’s a good idea to review your holdings at least once a year.

Financial advisors and retirement planning

At any age, it can help to have a roadmap for a comfortable retirement. A financial planner can bring a fresh perspective to your situation, along with personalized strategies as you begin thinking about retirement.

If you’re in your 40s, a planner can help you figure out how much you need to save if you want to retire at 67, 70 or some other age. A planner can also help you consider various scenarios, even including semi-retirement or other options.

He or she will typically run a comprehensive analysis of your financial situation, including not just retirement savings and your portfolio allocations but also college savings, tax strategies, insurance and your mortgage payoff rate.

Although you probably don’t have your retirement vision completely fleshed out at 40, because almost no one does, working with a financial planner can be a great start as you work toward your eventual goals.

Insurance and retirement planning

At 40, integrating insurance into your retirement planning and financial planning is crucial. Life insurance is crucial to protect your family in the event of your untimely death.

It’s not just the family’s chief breadwinner who needs to be insured. Stay-at-home parents would also be wise to consider life insurance. In the event of an early death, life insurance helps cover child care and ongoing household expenses and can help maintain stability at a difficult time.

While you may not need life insurance in the future, after you are no longer working and no longer have children living at home, it’s necessary for many people throughout their working years.

Tailoring insurance coverage to your situation is a way of bolstering your retirement savings with a safety net.

Be sure to regularly review and update policies as your life circ*mstances change.

Retirement lifestyle planning

We humans are pretty bad at thinking about our future selves, but that’s exactly what we have to do when planning for our future lifestyles in retirement. So go ahead and put on that futuristic thinking cap. If you establish financial goals and invest wisely, you can set yourself up for flexibility and a more enjoyable lifestyle down the road.

While your specific retirement dreams will almost certainly evolve over time, early planning can help ensure financial security, giving you more freedom to explore new interests or unexpected opportunities.

Health care considerations for retirement

It’s good practice to anticipate rising medical costs by factoring in health insurance premiums, co-pays and potential long-term care expenses.

As you get older, you’ll have to evaluate Medicare options and supplement plans to understand coverage gaps. At 40, nobody is thinking about Medicare, but many retirees find it’s a good insurance program, even if they choose to supplement it with private insurance.

Throughout your life, maintaining a healthy lifestyle to mitigate the effects of health issues can dramatically reduce medical costs over the long haul. That can make your retirement years not only less expensive but also more enjoyable.