Saving for retirement is crucial, especially as you reach your 40s. While having over $40,000 saved at this age is an accomplishment, many Americans struggle to reach their retirement savings goals. The median 401(k) balance for individuals in their 40s is $38,600, according to Fidelity Investments. By this age, it is recommended to have three times your salary saved for retirement, so if you earn $80,000 annually, you should ideally have $240,000 saved. With retirement edging closer each year, it is important to take proactive steps to secure a comfortable retirement.
Various factors have hindered Americans in their 40s from saving more for retirement. Many did not benefit from reforms to the tax system, such as auto-enrollment and auto-escalation in 401(k) plans. Additionally, individuals in this age group may be part of the “sandwich generation,” financially responsible for both child care and aging parents. These responsibilities can impact their ability to save for retirement, as they allocate their resources to cover these expenses.
To boost retirement savings in your 40s, it is important to gain a clear understanding of where your savings stand and what factors are within your control. While market volatility can impact your account balance, your savings rate is something you can control. It is recommended to contribute enough to get your company’s full match, if available, and aim for a savings rate of 15%, including any employer match. If you are behind on your savings, consider making short-term sacrifices to increase your contributions.
One way to increase your retirement savings is by using auto-escalation features to gradually increase your savings rate each year. If you have saved nothing for retirement in your 40s, you may need to save at a rate of 30% or more. As expenses related to child care decrease over time, redirect that money towards your retirement savings. Planning ahead for these changes can help you adjust your budget and increase your savings without feeling deprived.
Taking proactive steps in your 40s to boost retirement savings can help secure a comfortable retirement in the future. By understanding where your savings stand, increasing your contributions, and taking advantage of employer matches and auto-escalation features, you can work towards reaching your retirement goals. While it may require some short-term sacrifices, planning ahead and redirecting funds as expenses change can help improve your financial security in retirement.
