Saving for Retirement at 40? Follow These 6 Tips
Did you start saving for retirement at 40? Even though you started saving late, there are still ways to earn plenty for retirement. Follow these 6 tips.
The average American retires at the age of 62.
But there are also millions of Americans who are forced to work well beyond that age simply because they didn’t put enough of an emphasis on saving for retirement when they were younger.
If you want to keep yourself out of that category, you should start saving as early as possible and put aside money for your retirement fund. You can even start saving for retirement at 40 if you don’t get around to doing it until then.
The key is being smart about how you’re saving your money and what you’re doing to invest it. Here are 6 tips you should keep in mind when saving for retirement at 40.
1. Start Playing Catch Up as Soon as You Can
If you’ve recently made the decision to start saving for retirement at 40, you have some catching up to do.
That’s not to say that you won’t be able to save enough to retire. But it is to say that you won’t have the luxury of sitting back and making small contributions to your 401k fund.
Those who are 40 are legally able to contribute about $18,000 towards retirement savings. If you can swing it, you should do your best to contribute that amount every year from now on.
By doing it, you’ll give yourself the opportunity to hit the $1 million mark at around the time you’re ready to retire. That could, of course, change depending on how well your investments pan out.
But in general, you can easily start saving for retirement at 40 and make enough money to retire if you’re willing to go above and beyond and max out your contributions.
2. Figure Out How Much Money You’ll Need to Retire
When you begin saving for retirement at 40, you should take a look at your lifestyle and see how much money you’ll need to live off of down the line.
While $1 million might seem like a heck of a lot of money, it actually won’t prove to be that much once you’re retired and don’t have any other money coming in.
You should crunch the numbers and see how much money you’re going to need once you retire to continue to live the way you want to live. That number could ultimately change, but it’ll at least give you an idea of how much you should aim to try and save.
You could be forced to consider working a little longer than you might expect to in order to make enough money to live out your retirement dreams.
3. Open Up an American IRA
Is the $18,000 you plan on contributing to your 401k retirement plan not going to be enough for you?
You have the option of opening an American IRA to save up even more money.
The great thing about IRAs is that they grow tax-free and can also be withdrawn down the line without forcing you to think about taxes.
You will want to speak with your accountant or financial advisor more about how to use an IRA effectively. But it could prove to help you play catch up in a major way.
4. Avoid Taking Unnecessary Investment Risks
One of the biggest mistakes people make when they start saving for retirement at 40 is that they have a tendency to take huge risks with their investments.
They’re not happy with simply getting a 7 percent return on their investment and want to try and get 10 or even 12 percent returns instead.
While those who start saving for retirement at 25 or 30 can assume the risk that comes along with these kinds of gambles, those who are 40 can’t do it.
You don’t want to start throwing a bunch of money into your 401k and making strides only to realize that a big bet on an investment hasn’t paid off.
It could discourage you from saving for retirement. It could also make it almost impossible for you to hit your financial goals by the time you turn 65 or even 70.
5. Pay Off Any Debt You’re Carrying Around ASAP
Americans as a whole are carrying around $13 trillion in debt at the moment.
If you have accumulated a lot of debt, you should make a strong effort to get rid of it immediately.
Debt will prevent you from being able to put money aside for retirement. It’ll also zap you of a lot of the extra money you could be bringing in every month.
From credit card debt to car loans, you should try and steer clear of racking up too much debt in your 40s. You want to free up as much “extra” money as you can so that you can save, save, and save some more.
You’ll start to see your savings grow quickly once you get your debt out of the way.
6. Stop Yourself From Tapping Into Your Retirement Fund
A lot of people in their 40s and 50s will tap into their retirement fund for various reasons.
Some do it to help their children pay for their college educations. Others do it to buy vacation homes or pay for a big fancy wedding for one of their kids.
If you have hundreds of thousands of dollars socked away in your retirement fund, taking $25,000 or even $50,000 out might not seem like such a big deal.
But you’ve worked so hard to save money for retirement. You’ve worked especially hard if you just started saving when you turned 40.
Why do you want to undo all of that hard work by cutting into your retirement fund?
Let your kids take on student loans and put themselves through school. Or tell your kids that you can’t afford to pay for the gigantic wedding they have planned.
Your retirement savings should always come first. You’ll be glad you didn’t spend any of your savings unnecessarily when you reach retirement age.
Start Saving for Retirement at 40 Today
Saving for retirement at 40 isn’t necessarily easy. It’ll require you to be disciplined and to cut some costs as you work your way through your 40s, 50s, and 60s.
But it will be so worth it when you’re able to retire from your job and lead the life you want to lead.
Read our blog for more tips on saving money and being smart as you inch closer towards retirement.