At some point or another, you’ve probably asked yourself, “how much money should I have saved by 40?”
It’s a valid question that can be daunting to think about. The good news is you’re probably already saving money for retirement. The bad news is, you might not be saving enough money to retire when you want.
There are different ways to save money for retirement. The sooner, the better—so that it can start adding up. And that’s exactly what an increasing number of people in their 20s and 30s have been doing.
A Bank of America report found that almost one in four millennials (ages 24-41) have $100,000 or more saved as of winter 2020—a nearly 17% increase compared to that same report in 2015. The rising numbers are promising, but are these savings even enough? We’ll dig deeper into the numbers.
How Much Should I Have Saved by 40?
A general rule of thumb is to have the equivalent of your annual salary saved by the time you’re 30. By your 40s, many financial advisors recommend having two to three times your annual salary saved in retirement money.
In your 50s, conventional wisdom holds that you should have six times your annual salary in your retirement savings by the end of the decade.
How Can I Get My Retirement Money On Track?
If you feel you don’t have enough money saved yet, it’s never too late to get back on track. As you reach your 40s, it’s likely that your income increases, but so do the obligations tied to your money.
You might be saving money for your kids’ college; you probably have mortgage payments and existing debt; you may even be taking care of aging parents. It’s a lot of financial multi-tasking and you have to prioritize.
The key is to establish money goals and create a budget. Tracking your income and spending can help you figure out how much money you need to save for each goal and what kind of investments or savings make sense to achieve your goals.
This can be made much easier by using SoFi Relay to know where you stand with your money, what you spend, and how to hit your financial goals. With SoFi Relay you can track all of your money in one place, plus get credit score monitoring, spending breakdowns, financial insights, and more.
A key priority to think over is paying off any high-interest debt, including credit card debt. Be sure to make the payments on any existing loans to avoid any late fees or penalties for missed payments. It may be worth reviewing any loans you currently hold to see if you could potentially refinance to a lower interest rate.
If you don’t have an emergency money fund yet, consider putting that at the top of your priority list. You could plan to have three to six months’ worth of expenses saved.
Once you have high-interest debt paid off and an emergency money saved, you can allot a larger portion of your funds to save for retirement and other money goals. If you’re playing catch-up with your retirement money, try contributing any financial windfalls toward your retirement savings.
Saving and Investing Money by 40
If you already have a 401(k), there are a number of strategies to max out your 401(k) that are worth looking into. For example, it might make sense to contribute at least enough to qualify for any employer matching your company offers. Why lose out on the “free” money that your employer is willing to contribute to your retirement savings?
Try setting monthly or weekly savings targets to help you stay on track for retirement. You can even set up automatic transfers or deposits, so you don’t have to think about it.
As you’re rethinking how much money you need to save for retirement, it also makes sense to look at your lifestyle goals. That includes figuring out when you might want to retire, what kind of lifestyle you want in retirement, and how much money you might have coming in during retirement.
Where to Save Money for Retirement
Next, you’ll also need to figure out which retirement plan is right for you. There are many ways to save for retirement, even beyond the popular employer-sponsored 401(k). Other options include a traditional IRA or a Roth IRA (to see how much you can contribute to a Roth IRA, check out our Roth Contribution Calculator).
Some people choose to put their retirement savings in more than one type of account. This is useful if you want to set aside more than the yearly contribution limits on 401(k) plans—whether because you’re a high-income earner, or you started saving later in life, or you’re trying to achieve financial independence at a younger age. In that case, it might make sense to leverage a Traditional IRA, Roth IRA, or after-tax account to save beyond the 401(k) limits.
Investing in a Roth IRA now, with post-tax dollars, can also be useful if you want to withdraw money in retirement without paying taxes on the money. In contrast, 401(k) contributions are tax-deferred, meaning you will be taxed on funds you withdraw in retirement. That said, there are income limits on Roth IRAs, so this might not be an option depending on your salary.
After-tax accounts can be appealing to individuals who plan to achieve financial independence at a younger age and retire early. Unlike qualified plans, which place penalties on withdrawing funds before a certain age, an after-tax account is a pool of money that you can withdraw from without having to worry about penalties if you access the account before age 59 ½.
While there are conventional rules of thumb as to how much money you should have saved by 40, the truth is everyone’s path to a comfortable retirement looks different. One piece of advice is universal, however: The sooner you start saving for retirement, the better your chances of being in a financially desirable position later in life.
SoFi Invest® offers traditional and Roth IRAs. For individuals who want to make investments in addition to their retirement accounts, SoFi also offers an Active Investing platform, where investors can buy stocks, ETFs or fractional shares. For a limited time, opening an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is sign up, play the claw game, and find out how much you won.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Claw Promotion: For the full terms and conditions of SoFi’s Claw Promotion, click here. Probability of a customer receiving $1,000 is 0.028%.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.