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Is it too Late to Start Investing for Retirement at Age 40?

By: Ken Millhone, CFS* Investment Services Program Manager

Posted on 7/17/2020 11:37:34 AM

A smiling couple in their 40s with the woman leaning her head over his shoulder.

Most retirement advice is centered around early investing starting in your 20s, and if you’re a late bloomer, starting in your 30s. But what if you’re 40 and haven’t started investing in your retirement? Is it too late?

It’s not impossible to start saving for retirement at 40, and in fact, it’s probably not as tricky or complicated as you might think. With some hard work and smart planning, you can start investing for retirement at age 40 and end up a millionaire.

Why It’s Important to Start Investing in Retirement Now

If you’ve ever looked up retirement advice, you probably found plenty of articles, books, and even courses designed for people in their 20s and 30s. Even though investing in your 20s and 30s is great advice, it’s not always possible. And, even when it is possible, not everyone has the knowledge or discipline to save and invest as they’re figuring out their career, family, and lifestyle.

And if you’re one of those people, and you’re now in your 40s looking at retirement like an impossible dream, you’re not alone. One study showed that most Americans in their 40s and even 50s have saved less than $50,000 for their retirement.

And that might seem daunting, but, if you’re finally in a good financial position, then saving for retirement at 40 isn’t impossible. Don’t let what has happened in the past keep you from moving forward with your future. That pressure can be paralyzing, but starting now is an excellent plan because you’ve still got 25 years left to invest. Try to look at it this way: 40 is essentially the halfway point between high school and retirement.

How Much Money Can You Save for Retirement if You Start at 40?

Middle-aged man sitting in a chair with a laptop resting on his lap. He is looking at the laptop screen and typing.

There are a lot of factors that contribute to how much money you can save for your retirement if you start in your 40s. You’ll have to look at your expenses and income. Then, you’ll need to consider your debt and spending habits.

Once you’ve got a clear picture of your finances, you’ll be able to determine how much you can invest each month. Keep in mind, retirement accounts are investment accounts, and unlike a low interest savings account, your retirement will exponentially grow with interest and contributions over the years. This means, with compound interest and an investment of $650/month, you could end up with $1,000,000 for your retirement at age 67. Sound good? Then let’s take a look at the three steps you’ll need to complete to make it happen.

The First Step: Get Financially Fit

Not only do you need to have a clear picture of where all your money is coming from and where it’s going, but it’s also important to make sure you’re practicing good spending habits and reducing your debt. These considerations and actions will ensure you are financially fit, making it easier for you to invest in your retirement without having to worry about whether or not you have enough money to cover all your expenses.

  • Keep a Budget – The first step to financial fitness is to determine what your expenses are each month and create a budget to manage those expenses.
  • Have an Emergency Fund – Before you start investing in retirement, make sure you’ve got 3-6 months of income saved up in case of an emergency.
  • Reduce Spending – Once you have a budget, take a look to see if there are areas where you can cut your spending. Even just a few dollars in a few areas each month can have a big impact.
  • Reduce Debt – Debt can be a huge monthly expense that just keeps growing. Pay off your high interest debt so you can have more money to invest in your retirement.

The Second Step: Do the Math and Make A Plan

Side view of a middle-aged woman sitting on a couch. She is wearing a sweater and holding a mug in her hand. She is also writing in a notebook with a pen and smiling.

Once you’re financially fit, you’ll have a better idea of exactly how much you can save. Ideally, you will invest as much as possible and max out your contributions, but if you need to be more conservative with your initial investments, aim for 20% of your income each month. You can always invest more or less depending on your financial situation throughout the years.

  • Know the limits – There are limits to how much you can contribute to your retirement accounts, so when you’re creating a plan, make sure you consider these rules. If you have a 401k, you can only invest $19,000/year until you’re 50, but after that, you can invest $25,000 a year. By adding an IRA, you can invest an additional $6,000 a year, and at 50, that goes up to $7,000. Keep in mind, many 401k plans allow contributions to be matched up to a certain percentage, so it's wise to take advantage of these offers.
  • Use a Calculator – You don’t have to be amazing at math to figure out what you need. Keep in mind that once you retire, the recommended advice is to take out only 3-4% of your retirement each year. If you’ve got $1 million, that’s only $30-$40k a year. Use a calculator to really dig into the numbers.
  • Make a Plan – At this point, you should know exactly how much you can invest right now. Now it’s as simple as making a plan and sticking to it.

The Third Step: Start Investing

Making contributions to your 401k and IRA are not always straightforward. Even when you understand the contribution limits, have a budget, and have made a plan, there are a few additional considerations. Depending on when you want to retire, how the accounts are taxed, and how much your employer contributes, how you split your contributions between accounts will vary.

In general, it is recommended to contribute up to your employer’s match in a 401k and then invest the rest of your budget into an IRA. This advice could save you tens of thousands of dollars in taxes, but your individual situation might vary.

The Benefits of Working With a Financial Advisor

Because of the complex nature of contribution matches, compounding interest, taxes, age limitations, and the different types of accounts, it’s wise to work with a financial advisor. This is especially true if you’re just starting your investments in your 40s.

A financial advisor can help you look at all your income sources and investment accounts and work with you to develop a plan to meet your goals. They are experts at the complexities of investment accounts and have the resources to look at your individual finances and help you make the best choices for you and your family. As a Community First member, you have access to a team of CFS* Financial Advisors through our broker dealer, CUSO Financial Services, L.P. (CFS). We offer free one-on-one consultations to help you build a financial plan. Contact us at 904-371-8076 and select option 9 to get started. In the meantime, check out our library of online investment resources.


*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

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