Retirement Planning: 5 Moves You Need to Make in Your 40s


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Many Americans may be further behind on their retirement savings than they realize. According to a recent GOBankingRates survey, nearly 63% of American adults have less than $50,000 saved up. The same survey revealed that about 37% think they need less than $500,000 to retire, and another 30% or so believe they need between $500,000 and $1 million.

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While the exact amount you need to save for retirement depends on your personal needs and living expenses, many financial experts recommend saving at least $1 million or more if you live in a more expensive area.

How early you start saving can also affect your preparation for retirement. More than 41% of respondents said they started saving before age 30, but nearly 17% started between the ages of 31-40 and another 12% didn’t start until 41-50. Nearly a quarter of adults have not yet started.

If that’s where you are today, it’s not too late to start saving for retirement. GOBankingRates spoke to financial experts to find out the best ways people in their 40s can approach retirement planning.

Don’t rely on Social Security alone

More than 20% of respondents told GOBankingRates that they intend to rely completely on Social Security in retirement, and more than 30% plan to rely on it for more than half of their income.

Others, however, are more skeptical of Social Security. Over 23% don’t count on it at all, and another 25% expect it to make up less than half of their retirement income. A majority believe Social Security will either not exist when they retire (23%) or that it will offer much less than it does today (46%).

See: 6 things you need to do when planning for retirement

Jason Noble, a certified financial planner at Prime Capital Investment Advisors, warns against relying too much on Social Security.

“With the strain on Social Security, it’s projected to be over by 2035, according to the Social Security Board of Trustees’ 2022 annual report,” Noble said. “There could be a 20 percent reduction in Social Security benefits, which would mean that someone in their 40s really needs to save even more to offset the risk.”

Here is some more information about Social Security:

Evaluate your cash flow

When working with someone in their 40s who is just starting to save for retirement, the first thing Noble does is calculate their cash flow. This means seeing how much money you make, how much you spend, and how much you have left over.

This exercise can help you evaluate how much you can reasonably save. After all, retirement planning in your 40s is doable, but you’ll need to save more.

“For example, a 25-year-old who saves $15,000 a year and gets an 8% annual return and retires at age 60 would have about $2.79 million when he retires,” Noble said. “Someone who is 45 and earns an 8% annual return would need to save $95,195 a year to get to $2.79 million within 60 years.”

Here’s more about saving for retirement:

Minimize your spending

You may find that you need to cut back on your expenses so you can save more. Noble encourages customers to list their expenses and mark them with an E or D for essential and discretionary.

“A 41-year-old couple I worked with did this exercise and put a D next to Starbucks, which was $435 a month,” she said. “They bought a coffee maker and are now saving an extra $400 a month. With an annualized return of 8% and retiring at age 65, that’s an extra $317,596, which has a big impact on their retirement plan.

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Start paying your debts

Next, Noble helps his clients figure out how to pay off their existing debts. She recommends first paying off all debts that have an interest rate of 6% or higher before paying off the rest.

“At least we’ll save money [enough] to [get] their companies [401(k)] matching while allocating the remainder to this high-interest debt,” Noble explained. “After the high-interest debt is paid off, we take the same amount they were paying and allocate that money to their retirement savings to put them on way towards their long-term goals.

Diversify your investments, but focus on tax efficiency

The ideal way to invest, according to experts, is to start young and invest in a wide variety of assets. Here are some of the most popular ways Americans are investing, according to the GOBankingRates survey:

  • 401(k) or IRA: 52%
  • Actions: 39%
  • real estate: 24%
  • crypto: 21%
  • obligations: 21%
  • Annuities: 11%
  • Gold: 10%
  • Index funds and ETFs: 10%

If you haven’t started early, you can still invest in assets beyond the typical IRA.

“You can certainly save enough, but time is no longer your friend,” said Mike Schudel, financial advisor at Retire SMART. “Focusing on tax efficiency in places where wealth accumulates will be very important.”

Assets like real estate, farmland, and rental properties are all tax-efficient ways to grow your wealth until you retire.

Schudel also advises 40-year-olds to contribute to a Roth IRA. Unlike a traditional IRA, your Roth IRA contributions are not tax deductible. But you can withdraw money tax-free in retirement, which could save you money on taxes in the long run.

Here is some more information on retirement taxes:

More from GOBankingRates

Methodology: GOBankingRates surveyed 997 Americans ages 18 and older from across the country between August 9 and August 11, 2022, asking sixteen different questions: (1) How much money are you currently saving for retirement?; (2) How much money do you think you need to retire?; (3) Realistically, at what age do you want to retire?; (4) At what age did you start saving for retirement?; (5) What worries you financially about retirement? (Select all that apply); (6) Are you going to work in retirement?; (7) What assets do you have in your retirement portfolio? (select all relevant answers); (8) How has current inflation affected retirement plans?; (9) How much of your retirement do you plan to fund with Social Security?; (10) How do you feel about the future of Social Security when you retire?; (11) What percentage of your salary are you currently investing for retirement?; (12) Are you planning to move after retirement?; (13) Where is your ideal place to retire?; (14) What government programs do you plan to use for your retirement? (select all relevant answers); (15) Do you have a retirement plan?; and (16) How much do you think the average American has saved in retirement?. GOBankingRates used PureSpectrum’s survey platform to conduct the survey.

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