I’m 40 and Haven’t Started Saving for Retirement. Is It Too Late?

Cupcakes for a 40th birthday

This post is provided by Lena M. Nebel, CFP®, MSFS with BFG Financial Advisors.

Ideally, saving for retirement is something you start as soon as you start your career. But that’s not always possible. For a lot of people, cash flow just doesn’t allow for substantial savings earlier in life. Maybe you were paying off student debt, or funding a wedding, or simply trying to get by with the high costs of housing, childcare, and life in general.

The first thing I want you to know is this: it is never too late. Starting now means setting savings goals that are realistic for your timeline. Here’s how to get started.

Step 1: Build your emergency fund.

The first step to saving for future is actually saving for the present. Before you start investing or putting away money into inaccessible accounts, make sure you have a savings account that is easy to withdraw from in case of emergencies or unemployment. 

For those who have a steady salary, your emergency fund should be enough to cover all your bills and main expenses for three months. If you’re self-employed, a 1099 contractor, or “non-essential,” you should aim to save enough for six months. 

Step 2: Clean up any unnecessary debt.

If you’re still paying off student loans or have a substantial amount of credit card debt, it may make sense to focus on getting rid of that debt first. If you’re having difficulty paying off your debt, it’s going to be even harder to get started in a savings program. 

Step 3: Take advantage of employee benefits.

If your company offers a benefits package that includes a retirement plan, look into the 401(k) options. Many companies offer an employer match, which is basically free money put into your account when you make contributions. You should aim to contribute at least the minimum needed to receive a maximum match.

A few other considerations to make when opening your employer-sponsored 401(k) are:

  • Roth vs. Traditional 401(k): A Roth 401(k) is almost identical to a traditional account with one major difference: the money you put it has already been taxed. If you’re making less than $163,300 (double that number if you’re married), you’re in a low tax bracket and a Roth account will serve you better. 
  • The vesting schedule: If you’re not planning on staying at your current company for the remainder of your career, make sure you understand the vesting schedule of your 401(k) match. Unless the account offers instant vesting, you may lose the money that your employer contributed if you leave the company too soon.

Step 4: Consider other investment accounts.

A 401(k) account will have a contribution limit of $19,500 each year. If you hit that limit and still have funds you’re able to put away, there are other savings vehicles that you can look into.

A Roth or traditional IRA will allow another $7,000 per year of retirement savings. Like a 401(k), contributions can be made either pre- or post-tax (depending on which type of account you choose) and will be invested for future growth.

A great retirement savings vehicle that often goes unappreciated is the Health Savings Account (HSA). While this could be used to pay for day-to-day medical expenses such as copays and prescriptions, it can also be a great way to save for retirement. If you can afford to pay those expenses out of pocket, contributing to an HSA and investing the funds will allow the balance to grow over time and can be withdrawn tax-free during retirement to cover any qualified medical expense. 

Step 5: Take a deep breath.

While you may feel like you’re behind in saving or overwhelmed by the thought of starting, just take a breath and understand that no matter how old you are, the most important thing is that you’re starting to save now. 

You may have to adjust your planned retirement age, but you will get there if you take conscious, substantial steps to get there.

For additional financial resources including articles, podcasts, and books, visit brotmanmedia.com.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results. Kestra IS and Kestra AS do not provide tax or legal advice.

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