Even with a rocky start to the year in the market, workers in their 40s appear to be sticking with their retirement contributions.
Thats based on Fidelitys latest report, which analyzed data from more than 24 million of its 401(k) accounts through March 31. Heres how much people in their 40s have in their 401(k) accounts, on average:
For workers in their 40s, that amounts to a decline of roughly 3% in the first quarter, in line with a 3% drop across all age groups. By comparison, the S&P 500 index declined 4. 6% over the same period. The average 401(k) balance for all age groups fell to $127,100 as of March 31.
Despite market losses, workers in their 40s are keeping up strong 401(k) contributions. While Fidelity doesnt publish contribution rates by age, generational data suggests many are saving at or near the recommended 15% rate.
Gen X, which includes people in their late 40s, is contributing an average of 15. 4%, while millennials, who include workers in their early 40s, are saving 13. 5% on average. In contrast, Gen Z workers are saving 11. 2%.
Are you approaching the big 4-0 and wondering if your retirement savings are on track? You’re not alone. Turning 40 is a major milestone that often triggers a financial reality check. While you’ve hopefully been saving for years, now’s the time to get serious about your retirement goals.
I’ve spent hours researching the latest retirement savings benchmarks, and I’ll break down exactly what experts say you should have saved by 40 – and what to do if you’re behind.
The Magic Number: How Much Should You Have Saved?
According to financial experts at The Motley Fool by age 40 you should have approximately three times your annual salary saved for retirement. With the median salary for full-time employees between ages 35-44 being $65,676 (as of late 2023), that means the target savings amount is about $185,000.
Don’t worry if you’re not even close to that number, though. Most Americans aren’t meeting this goal.
What’s the Average American Saving at 40?
The truth is far less intimidating than the ideal numbers suggest:
- Only about 55% of people between ages 35-44 even have a retirement account
- The median retirement account balance is around $60,000
- The median net worth for this age group is $91,110
So if you’re feeling behind, you’re actually in good company. But that doesn’t mean you should stay there!
Factors That Affect Your Retirement Savings Target
Your specific situation might require more or less savings than the general guidelines. Consider:
- Your income level – Higher earners typically need to save more to maintain their lifestyle
- Debt situation – Many 40-somethings still have student loans (median $21,000) and credit card debt
- Lifestyle goals – Planning a lavish retirement means saving more now
- Expected retirement age – Planning to work longer gives you more time to save
- Other income sources – Expecting pension or other income reduces what you need to save
Savings Targets Based on Income Level
The 2024 Guide to Retirement from JP Morgan Asset Management gives you more specific goals based on your current income:
| Annual Income | Recommended Savings by Age 40 |
|---|---|
| $30,000 | $55,000 |
| $50,000 | $115,000 |
| $75,000 | $200,000 |
| $100,000 | $310,000 |
| $150,000 | $520,000 |
| $200,000 | $765,000 |
| $300,000 | $1,245,000 |
Help! I’m Behind on My Retirement Savings. What Now?
Don’t give up if your savings aren’t where they should be in your 40s. It’s still 20 years until retirement age, so you have a lot of time to get caught up. Here’s what to do .
1. Increase Your Savings Rate ASAP
The simplest solution is to save more, even though it will require some sacrifice. At 40, you’re likely in your peak earning years, which gives you a unique opportunity to accelerate your savings.
For example, if you’re 40 with no retirement savings and make $75,000 annually, JP Morgan suggests saving about 15% of your income to get on track. But if you wait until 50 to start, that jumps to 24%!
2. Maximize Your Employer Match
If your employer offers a 401(k) match, make sure you’re contributing enough to get the full match. This is literally FREE MONEY that many people leave on the table.
3. Consider Roth Accounts
The Motley Fool recommends prioritizing Roth retirement accounts if you’re trying to catch up. While you won’t get a tax break now, your withdrawals will be tax-free in retirement. Having a tax-free income source in retirement is incredibly valuable, especially if you retire a bit short of your savings goal.
Many 401(k) plans now offer a Roth option alongside traditional plans – check with your HR department to see if yours does.
4. Establish a Six-Month Emergency Fund
This might seem counterintuitive when you’re trying to catch up on retirement savings, but an emergency fund is crucial protection for your retirement plan. Without it, an unexpected expense could force you to withdraw from retirement accounts early, incurring taxes and penalties.
5. Negotiate Your Salary
Sometimes the problem isn’t overspending but simply not earning enough. By 40, you’ve developed valuable skills – make sure you’re being paid what you’re worth. Research comparable salaries using Glassdoor, Payscale, and Bureau of Labor Statistics data, then make the case for a raise or consider looking for a higher-paying position.
Even a side hustle can make a huge difference. An extra $100 per week invested over 20 years could add nearly $300,000 to your retirement savings (assuming 10% annual returns).
6. Set Boundaries on Family Financial Support
Many 40-somethings find themselves in the “sandwich generation” – supporting both children and aging parents. While helping family is important, you need to set boundaries.
Remember: your kids have multiple options for funding college (scholarships, loans, part-time work), but you have limited options for funding retirement. Prioritize your retirement savings over college funds.
A Real-Life Example: Getting on Track at 40
Let’s look at a realistic scenario:
Sarah, age 40:
- Annual salary: $70,000
- Current retirement savings: $50,000 (well below the recommended $210,000)
- Monthly expenses: $4,000
To get on track, Sarah decides to:
- Increase her 401(k) contribution from 6% to 15% ($10,500/year)
- Ask for a salary review at work, resulting in a 5% raise
- Start a weekend side hustle earning $400/month
- Open a Roth IRA and contribute $500/month
- Cut unnecessary expenses, saving an additional $300/month
With these changes, Sarah will add about $30,000 to her retirement savings annually. If she maintains this for 25 years (retiring at 65) with an average 8% return, she’ll have approximately $2.5 million – far exceeding her initial goal!
Be Realistic About Your Retirement Timeline
If you’re significantly behind on savings at 40, be realistic about your retirement timeline. Most financial planners recommend replacing about 70-80% of your pre-retirement income when you retire.
This might mean:
- Working until 67-70 instead of retiring at 62
- Considering a phased retirement where you work part-time for a few years
- Looking at lower-cost locations for retirement
The Bottom Line
While having 3x your salary saved by age 40 is the ideal target, the most important thing is to start saving more NOW, wherever you’re starting from. You still have decades of working and investing ahead of you to build your nest egg – but you can’t afford to delay any longer.
The best retirement plan is the one you actually implement. Instead of being down about where you should be, focus on what you can do today to make your financial future better.
What’s your biggest challenge in saving for retirement? Share in the comments below, and I’ll try to provide some personalized guidance!
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always consult with a qualified financial advisor before making major financial decisions.
How 401(k) savings compare to benchmarks
Fidelity recommends having three times your salary saved by age 40, and six times by 50. With the median full-time salary for people in their 40s roughly at $70,000, that implies a target of $210,000 to $420,000 — well above the average 401(k) balance reported for that age group.
To be fair, those benchmarks apply to total retirement savings, not just whats in a 401(k). Many workers also have other investment accounts, cash savings or inheritances that could add to their retirement totals.
Even so, hitting those targets can be challenging for people in their 40s. At this stage of life, many workers are playing catch-up with their savings and using higher mid-career earnings to boost retirement contributions and stay on track.
Whatever their age, most 401(k) savers have stuck with their contributions so far this year: just 4. 9% decreased their contribution rate, and fewer than 1% stopped contributing, per Fidelitys data.
How Much You Should Save In Your 401K By Age
FAQ
How much should you have saved for retirement at 40?
By age 40, you should have saved at least three times your salary. For every age after that, save three to eight times your salary. 45: Around four times your salary. 50: Six times your salary.
Is 100k saved by 40 good?
It’s a good sign if you have $100,000 in your 401(k) by the time you’re in your late 30s or early 40s, especially if you make regular contributions and take advantage of employer matches. Starting early and maximizing contributions can significantly impact your retirement savings over time due to compound growth.
Can I retire with $2 million at 40?
You can retire at age 40 with $2 million, but you need to carefully plan your spending, be disciplined with your money, and have a strong investment plan to account for a longer retirement period, possible healthcare costs, and inflation.
Can you retire at 40 with $500,000?
How much should a 40 year old save for retirement?
According to the Federal Reserve, Americans aged 45 to 54 have a median retirement savings of $115,000. “At 40, target two to three times your annual salary in savings,” Morgan advises. So, for someone earning $55,000 a year, $115,000 is a good target.
How much money should a 50 year old save for retirement?
By age 50, you would be considered on track if you have three-and-a-half to six times your preretirement gross income saved. And by age 60, you should have six to 11 times your salary saved in order to be considered on track for retirement. For example, a 35-year-old earning $60,000 would be on track if she’s saved about $60,000 to $90,000.
Should you plan your retirement at 40?
Typically, retirement planning goes hand-in-hand with end-of-life and medical planning. When people prepare to retire they undertake the dismal task of preparing for what comes after and they prepare to manage their health in old age. At 40, neither is likely to be high on your list of priorities. And that’s okay.