How Much Should I Have in My 401(k) at 40?

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401k at 40

It’s hard to say why, but there’s something about turning 40 that made me think a lot harder about some things. One of those things was how much money I was saving for retirement. More specifically, how much should I have in my 401(k) at this point?

Assuming you are like me, that’s where most of your retirement investment money goes these days. Just having a certain percentage of money taken out of the paycheck every month is the easiest way to build that balance.

But wanting to know how we stack up is human nature. Luckily for those who are curious, there have been numerous studies done over the years estimating what people have in their 401(k) at each age. There also is no shortage of guidance from financial experts about what you should have by age 40, and why many Americans are falling behind.

How to Calculate What You Should Have Saved By Age 40

There are a couple different ways experts recommend you calculate how much savings you should have at certain ages. These can lead to significantly different numbers, and ultimately will depend on your lifestyle in retirement.

One of our go-to financial experts is Fidelity Investments, and they have recommendations for savings at each age. They determine savings based on a multiplier of your salary, which starts at 1x your pre-retirement salary by 30 years old. By the time you turn 67, you should have 10x your salary to ensure a comfortable retirement. 

But by the time you turn 40, Fidelity recommends having 3x your salary, so you should be sporting about $150,000 if you are earning a salary of $50,000. That probably seems like a big number to most of you, because the stats tell us people are not keeping to this pace at this age.

The average savings by age 40 according to the Transamerican Center is just $63,000. That number is undoubtedly skewed after factoring in the high earners. So most people are going to have under this number, and that makes things look even worse.

Another standard sometimes used for retirement savings is being able to pay yourself 80% of your salary for twenty years after retirement. So if you earn $50,000, you would need $800,000 without factoring for inflation. That’s even more than the Fidelity model tells you to save.

You can see that things are starting to get complicated if you’re falling behind at age 40.

How To Catch Up on Retirement Savings

So if you’re one of those people who’s falling behind, don’t panic. The good news is that you have started thinking about this with enough time to recover. Yes, it will take harder work, and undoubtedly some sacrifice, but it can be done.

Here are just a few ways you can catch up on your retirement savings.

1) Make catch up payments to your 401(k) and IRA – You can make catch up payments once you turn 50.

2) Work Longer – Believe it or not, this is a growing trend. People are working later into life, with some deciding they will never retire. If you are physically capable and enjoy what you do, this is one of the best ways to make up for not saving enough. In fact, some studies show a benefit, both physically and mentally, to continuing to work later in life.

3) Budget, budget, budget – I’m not sure why, but some people just hate to budget, or just don’t do it. If you are one of those people, get over it, and put a budget together, and track against your actual spending. You might be surprised to see how far over your budget you go in certain categories of spending. Many times we’ve been doing it so long, that we lose touch with how much we spend on things like food or shopping.

4) Debt Consolidation – Look at ways to restructure your debt to save on monthly payments. If you have significant credit, student loan, or other debt, getting just a percent or two reduction in interest can save you a bundle. Just make sure to route that saving straight to your retirement savings, or it’s not going to help you in the chase for retirement.

5) Chime Bank – Check out a bank like Chime that helps you save more when you spend using their debit card. Every transaction you make is rounded up to the nearest dollar, and the “Round Up” is automatically transferred to a savings account.

What Factors Determine How Much You Need to Save

You can also impact the overall savings you need by looking at the different factors that will impact your retirement expenses.

Lifestyle – Understanding how your lifestyle will impact your retirement timing requires a detailed plan. You need to think through how you want to live in retirement, and what that will cost. If you can keep costs down by downsizing your home, traveling less, or any other means of cost-cutting, it can reduce the need for as much savings.

Investment allocations – At 40 years old you still have time to play with your investment allocations. Maybe you haven’t spent much time getting your investments into strategic funds. If you have savings, but it just sitting in low return investments, you may want to reconsider. You don’t need to be ultra-aggressive, but some of your money can definitely be in higher risk/higher return investments. Consult a financial advisor if you haven’t already. They can be well worth the money by getting you invested in assets that maximize returns on your money.

Insurance – Another thing many people in their 40’s don’t think enough about is insurance. There are multiple insurance products out there you can purchase to help increase income and defer costs down the road. For instance, purchasing a deferred annuity at this age can give you a secure income stream in retirement. And things like long-term care insurance can help defer costs of getting older and the care that comes along with those realities.

What You Should Be Contributing

The short answer is contributing as much to your 401(k) as you can up to the $19,000 limit for 2019.

That said, try to fund a “rainy day” account with at least three months of expenses to ensure you don’t have to tap into your 401(k). Generally speaking, if you take withdrawals from you 401(k) before 59 ½ years old, you will be subject to a 10% penalty fee. You want to avoid that scenario at all cost, so make sure your contribution number, also allows you to comfortably cover your expenses.

Let’s say you can’t afford to max out your contributions to a 401(k). Experts recommend at a bare minimum trying to invest enough to get any matching contribution from an employer. If you can do that, you’ll at least be getting what is essentially free money being offered to you.

The Bottom Line

You might not be twenty-five anymore, but you still have plenty of time to impact your 401(k) savings. If you haven’t already, take the time to put a detailed plan and budget together.

Understanding where you stand today compared to what you want your lifestyle to be in the future is critical. There are many ways to impact the total amount you will need for retirement. There are also many ways to grow savings at a faster rate than you may be doing today.

With some concerted effort and some help from a professional, you should be able to get your 401(k) savings where they need to be.


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