How to Invest for Retirement at Age 40

If you’re approaching your 40th birthday, retirement may still be two or three decades away. However, if you haven’t started saving yet, that timeline can feel much shorter than it sounds. The good news is that many people still have significant earning years ahead of them at this stage of life, which means there is time to build momentum through consistent saving and investing. By setting clear retirement goals, contributing regularly to investment accounts and choosing an appropriate portfolio strategy, you can begin building a financial foundation for the future.

If you’re unsure where to start, working with a financial advisor can help you evaluate your investment options and create a strategy designed to support your long-term retirement goals.

How Much You Should Have Saved at 40

There is no one-size-fits-all answer for how much you should have saved by age 40. The question of how much you should have saved depends largely on what your goals for retirement are. If you plan to do a lot of travel and stay in the single-family home you raised your kids in, you might need more than if you’re planning to downsize to an apartment and mostly be a homebody.

Once you’ve thought about what your life in retirement is going to look like – and you know at what age you think you might want to retire – you can start figuring out what’s a good savings goal for you to aim for and whether or not you’re on track.

If you have a 401(k) plan through your employer, you can use this 401(k) calculator to estimate how much your savings will be worth.

What to Do If You Have No Savings

If you’re 40 and have no savings, count yourself lucky – you could be 50 and have no savings. Yes, it would have been nice to start earlier, but you’ve got plenty of time to catch up and make sure you get back on track to retire at a reasonable age and enjoy your golden years.

Think about what options you have. If you have access to an employer-sponsored retirement plan like a 401(k) or a 403(b) make sure to take advantage of them. Your company may even match some of your contributions to these plans. If so, check out how much your match is and at what percentage. This is free money, so if you’re behind in your savings, you should make sure that contributing enough to your plan to take advantage of it.

Save beyond your 401(k) plan if you can. After you’ve reached the yearly maximum for your 401(k), think about other investing options like a Roth IRA or even a money market account with a high interest rate. Once you’ve figured out how much money you can afford to save, make sure you invest all of it in vehicles that are going to make your money work for you. Saving money is great, but if you’re going catch up with your retirement goals you need to boost your savings. Keeping the money you’re saving in a checking account won’t do that, so invest as much as you can in products that will make money for you.

Investment Strategies for 40-Year-Olds

First off, if you have enough investable assets, think about getting a financial advisor. A financial advisor will work with you to make sure you’re able to meet your retirement goals, and they will direct you to the investments most likely to pay off in the end. Make sure your advisor is a fiduciary, meaning they have to keep your best interests in mind when making investment decisions.

If you’ve decided against using a financial advisor, you can also learn to invest on your own. Consider reading one of the top investing books for guidance. Many experts recommend having a diverse mix of investments. At age 40, some experts will say that you can probably afford to take some risk, but also look for more stable investments like index funds and bonds. The thinking behind this is while these likely won’t have the explosive returns investing in individual stocks can have, they’re also less likely to have catastrophic losses. This should make sure you’re safe for your retirement.

Where to Invest for Retirement at Age 40

When thinking about how to invest for retirement at age 40, choosing the right types of accounts can be just as important as choosing the investments themselves. Tax-advantaged retirement accounts can help your savings grow more efficiently over time, which may make it easier to reach your long-term goals.

Employer-sponsored retirement plans are often the first place to start. If your employer offers a 401(k) or similar plan, contributing enough to receive the full employer match can significantly boost your savings. These contributions are typically made with pre-tax dollars, which may reduce your current taxable income while allowing your investments to grow tax-deferred until retirement.

IRAs can also play an important role. A traditional IRA allows contributions that may be tax-deductible depending on your income and participation in an employer plan. A Roth IRA, on the other hand, is funded with after-tax dollars but allows qualified withdrawals in retirement to be tax-free. For many investors in their 40s, combining employer plan contributions with IRA savings can help diversify their tax exposure in retirement.

Health savings accounts (HSAs), if available with a high-deductible health plan, can also serve as a supplemental retirement tool. Contributions are tax-deductible, investments can grow tax-deferred and withdrawals used for qualified medical expenses are tax-free. Since healthcare costs often increase later in life, using an HSA as part of a long-term savings strategy may help cover those expenses in retirement.

Once you have maximized contributions to tax-advantaged accounts, you may consider investing additional savings in a taxable brokerage account. While these accounts do not offer the same tax benefits as retirement plans, they provide flexibility and can serve as an additional source of income during retirement.

Bottom Line

If you’re turning 40 and you’re just starting to think about retirement, don’t panic. You’re a little bit behind the curve but there is still plenty times to catch up. First off, make sure you’re investing as much of your income as you can. Make sure your money is working for you in some sort of investment vehicle, not just sitting in the bank. Second, think about investment strategy. Consider finding a financial advisor who will help you get on track. And remember many financial experts recommend balancing riskier investments with more stable ones like index funds. Retirement is still a couple of decades away for you, but you can see it on the horizon.

Retirement Tips

• Consider working with a financial advisor. Planning for retirement can be stressful and confusing. It’s also incredibly important that you make the right decisions in order to set yourself up for a secure financial future. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Don’t forget about taxes. The state you retire in will have a big impact on what your retirement future looks like, as some states are much more friendly to retirees when it comes to taxes than others. SmartAsset has created a guide to retirement taxes that allows you to see how your state rates for retirement tax friendliness, or look for other states you might settle in.
• Social Security. Keep in mind you’ll also be getting a check each month for Social Security. SmartAsset’s free Social Security calculator shows you how much you can expect to receive in Social Security once you reach retirement age.

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