At 40, your life experiences may look different from your peers. Some people will be hitting milestones like buying a house, while others are sending kids off to college or hitting their peak earning potential.
But no matter what stage of life you find yourself in, almost all 40-somethings share a concern: Do I have enough money in my retirement savings?
We talked to financial advisers and other experts about how much retirement savings you need, if you should strive toward other financial goals that don’t involve your brokerage account balance, and whether 40 is the right time to double down on contributions to your retirement accounts.
How much money should you have saved by 40, according to financial experts
By age 30, the advice is to have your annual salary saved. By age 40, your savings goals should be somewhere in the neighborhood of three times that amount. According to 2023 data from the U.S. Bureau of Labor Statistics, the average annual income hovers around $62,000. This means retirement savings goals for 40-somethings should tip the scales at around $200,000.
While you might have some competing priorities clamoring for your savings by age 40, Certified Financial Planner and author Lauryn Williams says your retirement plan should be front and center.
“In your 40s, your instinct will be to save for your kid’s education because you won’t want them to struggle with student debt, but you should really be ramping up your retirement savings instead,” she says.
How much do most people have in their retirement account by 40?
Unfortunately, the average retirement account balance for most 40-year-olds doesn’t top six figures. While the 2022 Survey of Consumer Finances from the Federal Reserve indicates the average net worth for U.S. households is just over a million dollars, Empower says the average retirement savings in a 401(k) for the 40-45 age group is $90,774.
While you may feel relieved you’re not the only one who hasn’t met your retirement savings goal, Brent Weiss, CFP® and Head of Financial Wellness for Facet, says achieving financial independence is the real savings target.
“The most important thing you can do is sit down and define the life you want to live and the things that matter most to you so you can be more intentional about how you spend your money,” Weiss says.
Read more: Americans continue to ransack their retirement savings, survey finds
A step-by-step guide to prioritizing savings at 40
If you can’t save your annual salary — much less multiples of it — there are things you can do to maximize your income and put more money toward that retirement nest egg.
Step 1: Start retirement planning if you haven’t yet
If you don’t have a financial plan for your retirement, now is the time to create a first draft. Consider what you want your retirement to look like — do you want to travel, continue working part-time, or something else? Talking to a financial professional can help you map out the specifics, such as whether you’ll have enough money to cover your living expenses.
Peter Lazaroff, CFA and CFP® and host of the Long Term Investor podcast, cautions that retirement planning is a moving goalpost. “From your 30s to your 50s, the difference between what you think you want retirement to look like versus what you want out of retirement when you get to 50 is drastically different.”
Read more: Retirement planning: A step-by-step guide
Step 2: Focus on earning
Peak earning years are generally considered to be in your late 40s to early 50s, but it’s never too early to start building a better salary. Check the median salary for your profession and take steps to maximize your ability to earn a higher income, whether that’s earning an extra certification in your field, looking for openings at better-paying companies, or simply making the case for a raise.
And don’t underestimate the value of the employer match on your 401(k). For retirement savers, it’s worth noting that Fidelity Investments data indicates employers contribute up to 5% of what’s in retirement funds for employees in the 40-45 age bracket.
Step 3: Get serious about an emergency fund
If you didn’t start an emergency savings account in your 30s, now is a good time to open one. Although you’re likely to be more financially stable as you near 40, there are still plenty of unexpected life events that could upend your ability to save for retirement.
As a general rule, most financial experts recommend keeping three to six months’ worth of living expenses in an emergency fund. For example, if your monthly expenses are $3,000, your eventual goal would be to keep between $9,000 and $18,000 in an emergency fund.
Keep your emergency fund money somewhere safe and easy to access – but separate from the money you regularly spend. A high-yield savings account at a bank or a credit union is a great choice.
Step 4 : Prioritize your retirement savings
Whether you’re maxing out pre-tax retirement contributions, dumping money into a Roth IRA, or socking money away in a money market account or an online savings account, the priority right now is to save, save, and save some more.
“In your 40s, you’re about 20-25 years from retirement so it’s time to prioritize retirement savings now that you’re hitting that benchmark,” advises Williams. “You should be saving aggressively because it’s easier to stay on track in your 40s with retirement savings than to try to make big adjustments later.”
Step 5: Maximize the tax benefits of health savings accounts
You get a tax break with health savings accounts (HSAs), so they’re worth the direct deposit from your paycheck if you expect significant healthcare expenses in the short term. You (and your employer) can put funds in pre-tax to spend on doctor visits, prescriptions, and other related costs.
Over the long term, they can help you meet your retirement savings goals. You can invest the money in an HSA, and if you leave it untouched, it will grow and earn interest. When you make withdrawals in retirement, you won’t pay any taxes if you spend the money on health care expenses.
Step 6: Square away student loan debt
Still have student loan payments that are eating away at your checking account balance? If you have enough income to pay off your student loans (or credit card debt, for that matter), Steuer says the smart move is to get it done and remove that burden from your monthly expenses.
“If you’re paying 7% or 8% interest rate on a private student loan and you’re putting money into your retirement fund ahead of paying off your loan, you’re going to have to earn better than an 8% APY on your retirement, or you’re just treading water financially until you pay down that debt.”
Step 7: Don’t short your retirement fund for your kid’s college expenses
This one may sound controversial, but it shouldn’t be. Parents in their 40s are usually trying to juggle saving for their retirement and with socking money away for their children’s college. But financial experts advise against prioritizing your kid’s college fund over your own 401(k).
“You know how when you’re in a plane and the oxygen mask drops down and they say to focus on putting your own mask on first before you help your kid?,” says Weiss. “That’s really how we need to be thinking about finances in your 40s. Put your own financial health mask on first before you worry about college.”
Read more: Investing in a college savings plan: What you need to know
Step 8: Invest in a financial adviser
Lazaroff says if you haven’t considered a financial adviser yet, hitting 40 is the perfect time to begin working with one on your retirement goals.
“If you wait until you’re close to retirement or until you have a huge pot of money, you’ll miss out on opportunities to grow,” he says.
Financial advisers aren’t just for tax advice or playing the stock market. Hiring a financial professional can turn up new ways to earn better investment returns or leverage your compound interest. Select one who charges a flat fee rather than a percentage of your assets.
Read more: What is compound interest and how is it calculated?
How to start saving by 40 FAQs
Should I be maximizing my individual retirement account (IRA) contributions in my 40s?
Contributing the most allowable of your pre-retirement income is always advisable, especially as you enter your 40s and 50s. While you’ll have the chance to do catch-up contributions in your 50s, you won’t have enough time to put compound interest to work before joining the retiree ranks.
“Your primary question should be what do I need to do to meet my baseline and keep safe,” says Williams. “After that, the priorities are first to pay off consumer debt and then to set up an emergency fund to keep you out of debt when emergencies happen. Then you can focus on retirement savings.”
What’s the most important personal finance goal to focus on in my 40s?
As you have more money saved for retirement and get closer to meeting those savings guidelines, think about how social security benefits play into your strategy and how you’ll access your retirement income. This is when having different investment vehicles can help.
“In your 40s you should start diversifying the buckets you have,” advises Weiss. “In your 40s be intentional about building different buckets down the road with Roth IRAs and HSAs and other options. Because down the road when you get into the red zone of retirement, the money will be starting to grow and will give you more flexibility when you decide to hang up the cleats on your career.”