Haven’t Started Saving for Retirement by Age 40? Here Are 7 Ways To Catch Up

If you haven’t started saving for retirement yet at age 40, don’t panic. There are plenty of options you can take that can help you accelerate your savings and reach your retirement goals. But there’s no longer any time to dilly-dally. You’ll have to start taking concrete steps as soon as possible if you want to build up your nest egg to where it needs to be.

Good To Know:

Here are some suggestions to get you on your way. 

If you work for a company that offers a 401(k) plan, that is typically your easiest path to a sizable retirement account. In addition to the tax benefits that these types of accounts provide, most 401(k) plans also offer matching contributions from employers. For example, your employer might match 100% of a maximum of 3% of your salary. This is the closest thing you will likely ever get to “free money,” and it’s a great way to boost your account value.

Regardless of your age, the best way to increase your account value rapidly is to contribute as much of your paycheck as you can. But this is particularly important when you are in your 40s, as you are likely at or near your peak earning years. In other words, contributing 15% of your paycheck when you are earning $80,000 per year will be much more impactful than kicking in 15% of your pay when you’re earning just $25,000 per year. When your salary is high and going higher, that’s the time to take advantage of maximum retirement plan contributions. This may cause some short-term pain if you’re not used to saving, but it won’t take long until you’re used to a big portion of your earnings going to your retirement accounts.

If you’re not in the habit of contributing to your retirement accounts, it can be hard to stick to a regular savings plan. The best way to avoid this obstacle is to automate the process. Start small by setting up regular transfers of perhaps 2% of your earnings to your 401(k) plan or other investment accounts. From there, you should steadily increase your automatic contributions in small increments, such as an additional 1% per month. It’s likely you will hardly notice these increases, but before you know it, you’ll be kicking in 15% or more of your income to your retirement accounts. Perhaps most importantly of all, you’ll never forget to make a monthly contribution because it will be automatically deducted from your account.

Starting a retirement savings plan at age 40 is going to require some level of sacrifice. One way to boost your contributions is to divert some of your cash flow from discretionary spending to your investments. Take a close look at your budget and see where you can trim nonessential expenses and use that money to help fund your retirement. For example, if you go out to eat five times a week, cut that down to one or two at most and eat at home instead. This small change alone could translate to hundreds of dollars in savings every month that you can invest for your retirement. 

In some sense, saving for retirement comes down to simple math. The more you sock away for your retirement, the larger your nest egg is likely to be. To this end, it’s important to earn as much money as you can. Whether it comes from a side gig or a raise at your regular job, boosting your earnings is the best way to get more money for retirement. Just be sure to divert all of the extra income you pull in toward that purpose rather than falling prey to “lifestyle creep,” where your spending increases along with your earnings. Remember that earning more money while you’re working will also increase the amount of Social Security income you’ll eventually receive in retirement. 

Your home is likely your most valuable asset. Depending on when you bought it, you may have substantial equity tied up in it. You can leverage your home to create additional wealth if you consult with experts and make prudent moves. On the more conservative side of things, you can rent out one or more rooms in your home to generate additional income for your retirement savings. If you understand real estate, you may also be able to use the equity in your home to purchase an additional property, which could provide both extra rental income and potential price appreciation. 

No one wants to push their retirement date, but it can be a great help when you’re trying to reach a savings goal. For starters, working an extra few years can help you generate additional earnings. It will also boost your Social Security payout — as will delaying the date you claim benefits. Retiring a few years later also means that you will have a shorter period of time that your retirement savings will have to last. 

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