4 money moves to make in your 40s to prepare for retirement


In your 40s, you may have several different financial goals: saving for your child's college education, helping to support your parents, paying off your own loans or mortgage, and more.

It's natural to assume you should put your family's needs first. About three-quarters of adults with kids say they'd prioritize their kid's college education over other goals.

And being sandwiched between caring for your parents and your children can make the situation even harder: More than one-third of parents with children ages 8-14 care for an aging relative, too, which costs on average $1,000-$3,000 per month, according to a T. Rowe Price Survey.

Still, financial experts say you shouldn't put your retirement at risk by bumping your own future down the list and figuring you'll save later.

"You can borrow money to go to college, but there's no borrowing for retirement," says H. Jude Boudreaux, a certified financial planner and partner at The Planning Center in New Orleans, Louisiana. "It's most important to not delay saving for retirement, because of the power of that growth over time."

Here are four money moves to make in your 40s that can better prepare you for retirement.

1. Figure out how much you need to save

If you plan to retire at 67, by 45 you should have saved approximately four times your annual salary, according to a 2017 report from Fidelity.

People in their 40s with workplace retirement plans have an average balance of $102,700 in their 401(k)s and contribute 8.5% of their paychecks, as of the first quarter of 2019, according to Fidelity. That's not far from the 10%-15% of your annual income experts recommend you put away for retirement.

But some "supersavers" can skew the data. And nearly 25% of American adults have no retirement savings at all.

If you're falling behind on your retirement goals, you can use a savings calculator to map out how much you'll need to put away to catch up. And there's still time. Let's say you start saving $1,000 per month at age 40. You'll have just over $806,000 saved if you retire at age 67, assuming annual interest of 6%, compounded monthly.

"Sometimes it really is as simple as saving more," says Stuart Armstrong II, certified financial planner and lead advisor at Centinel Financial Group, LLC, in Needham Heights, Massachusetts.

2. Get more from your 401(k)

Only 13% of participants with 401(k)s maxed them out in 2017 and reached the salary contribution limit of $18,000, according to a Vanguard report about its investors. But you don't need to put in as much money as you're allowed to each year in order to take fuller advantage of your account.

One easy way to gain more from this plan is to make sure you're getting whatever 401(k) match you may be eligible for. The typical employer match is 3% of your salary, though companies have different formulas and some will even match twice that. Make sure to put in at least as much as necessary to get the match, since your employer's contributions count toward the 10%-15% total experts recommend you put away.

If you're not getting your match, you're potentially losing out on thousands of dollars over time. For example, if you make $50,000 and put in 6% of your annual salary into your 401(k), you'd save $3,000 in a year. If your employer matches 3%, you'd have an additional $1,500 — bringing your total to $4,500 saved for retirement that year.

Boudreaux also suggests routinely increasing your 401(k) contributions by 1%. If you're not feeling a significant loss in your paycheck, he says to "build on that [1%] and do another 1%."

In the end, he says, "focus on progress, not perfection."

3. Take on the right amount of risk

In your 40s, it can be easy to worry if your retirement fund isn't as large as you'd hope, says Boudreaux. That can result in taking more chances in order to seek aggressive growth.

That's not always the best strategy, though. Don't take on more risk than you can manage, says Boudreaux: "If you're not the kind of investor that can handle a downturn, that can do more damage than trying to catch an extra return."

You still have have about 20-25 years to build up your savings until retirement. That means your portfolio should be geared toward long-term growth potential. Your best bet is to keep about 80% of your investments in stocks, which historically have higher returns over time, and the remaining 20% or so in bonds, according to T. Rowe Price.

Not sure how much risk you can handle? Try the trash can test, which makes hypothetical downturns feel real.

It's most important to not delay saving for retirement, because of the power of that growth over time.
Jude Boudreaux
Certified financial planner

4. Look for areas where you can cut back

If you're feeling strapped for cash in your 40s, Armstrong recommends taking a look at your monthly expenses and seeing if there are any areas that you can trim.

Boudreaux agrees and suggests, for example, looking into the streaming service subscriptions that you don't use, or bill creep from your internet and cable provider. Those may be costing you more than you think. It's also possible to negotiate a lot of these bills to get a better deal.

While you're looking to cut back, he says, focus on things you truly enjoy and instead cut out "mindless spending habits."

Remember that, by prioritizing your retirement, you are doing what's best for your family, says Boudreaux. "Ultimately, if you're not preparing for your own retirement, that may have an impact on your children and their ability to one day retire if they feel the need to care for parents," he says. "Put on your life jacket first, and then help the kids."

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