Investing in your 40s may seem late, but there's still a chance to accumulate wealth. Here's why.
In the midst of busy lives, it's never too late to start saving for retirement. Even if you're in your 40s, a comfortable retirement is still within reach. With a conservative assumed annual growth rate of 8%, here's how you can effectively save for retirement.
By investing $15,000 annually, you could amass $439,864 after 15 years, $47,519 after 5 years, $741,344 after 20 years, and an impressive $1,184,316 after 25 years. But what if you can only afford to invest $7,500 annually? Don't worry, as you can still build a substantial nest egg. After 15 years, you could have $219,932, after 20 years, $370,672, and after 25 years, $592,158.
Maximising contributions to tax-advantaged accounts like your 401(k), especially capturing any employer match, is crucial. To save effectively, aim to have saved about two to three times your annual salary by your early 40s and continue increasing contributions toward the maximum allowable limits. For instance, in 2025, the limit for those under 50 is $23,000, rising to $30,500 once over 50.
Supplement your employer-sponsored plans with Roth or traditional IRAs to balance tax advantages. If you expect higher tax rates in retirement, consider performing Roth conversions strategically.
For low-fee index fund recommendations, popular target-date funds with expense ratios well below 1% are ideal for someone targeting retirement around 2045. Examples include the Vanguard Target Retirement 2045 Fund Investor Shares (VTIVX) with an expense ratio of 0.08%, Fidelity Freedom Index 2045 Fund Investor Class (FIOFX) at 0.12%, and Nuveen Lifecycle Index 2045 Fund Premier Class (TLMPX) at 0.25%. These funds provide a diversified portfolio that gradually becomes more conservative as retirement nears, helping manage risk.
In addition, automate contributions to build consistent savings habits. A simple, low-fee index fund such as the Vanguard S&P 500 ETF (VOO -1.60%) can be a good investment choice.
Delaying your retirement can also have benefits. It can help you get bigger Social Security checks and save on health insurance costs. If you retire at 65, you still have 20 years of saving, investing, and growth ahead.
Taking on a side gig for a few or many years can also help you save more money. With these strategies, a sizable nest egg may be possible even for those who start late.
- To boost your personal finance and secure a comfortable retirement, consider setting aside money each year in tax-advantaged accounts like a 401(k) and supplementing with Roth or traditional IRAs.
- In the long run, delaying retirement can lead to bigger Social Security checks and savings on health insurance costs, providing more funds for your retirement.
- Strategic retirement planning involves considering low-fee index funds, such as Vanguard Target Retirement 2045 Fund Investor Shares, Fidelity Freedom Index 2045 Fund Investor Class, or Nuveen Lifecycle Index 2045 Fund Premier Class, to benefit from diversified, low-risk investments.
