Not Where You Want to Be at Age 40 with Your Retirement Savings? Here's How to Step it Up.

I can't believe my husband and I have started attending 40th birthday parties! How the heck did that happen? (We're not quite there yet ourselves, but it's getting closer… Eek!)

When you celebrate your 40th birthday, you probably don't feel like you're closer to retirement than your high school graduation, but it's true.

By age 40, experts recommend having three times your salary socked away. For example, if you earn $60,000, you should have $180,000 saved by 40. Unfortunately, that amount may seem like a fortune if you haven't been saving. 

If you feel paralyzed by this number, you're not alone. The average 401(k) balance for Americans between the ages of 40 and 49 is $120,800 as of the fourth quarter of 2020, according to Fidelity.

Let's go through some tips to help you increase the amount in your nest egg, even if you've currently got less than a penny saved.

Tip 1: Target a goal.

Let's say you haven't started saving any money at all. It helps to target an exact amount based on your savings goals. Let's say you want to achieve at least $1 million by age 65. You'd need to invest $800 a month if you started investing from scratch at age 40. If you delay retirement until you turn 67, you could reduce that amount to $650.

Is $1 million enough? That's a question that many wrestle with. There's no perfect formula for every person. It depends on things that are unknowable, such as your life expectancy. However, you should consider your current spending and saving levels and lifestyle preferences in retirement when you consider the right amount to target.

Tip 2: Prioritize Roth retirement accounts. 

Most people choose their employer's 401(k) or 403(b) to get started saving for retirement. You absolutely want to invest in your employer's retirement account to get the match. Never, ever leave free money on the table. However, consider investing in a Roth IRA over a traditional IRA if you want to invest beyond your employer's retirement fund. (Your employer might not offer funds you like.)

You may also want to look into a Roth 401(k) option in lieu of a traditional tax-deferred plan. Check with your human resources department at your company to find out whether your company offers a Roth version of your employer-sponsored retirement account.

Tip 3: Consider budgeting.

In order to "make room" for your retirement investments, you may need to set up a budget. First, total up your monthly take-home pay and add up your fixed expenses and non-monthly costs. Add up your contributions to your financial goals. Do some simple math so you can make sure you can affordably contribute to your retirement fund.

A budget allows you to set your spending priorities before the month begins, so you always know where your money’s going and how it’s working for you.

Tip 4: Consider your other debts.

Not sure whether you should pay off your other debts to free up money to invest? (You may think about how much more you'd have to invest if you paid off all your other debts.) 

Common debts, according to Equifax, include the following: credit card debt, mortgages, auto loans, student loans and medical debt. Various types of loans and debts have their own payment plans, tax implications and impacts on your credit scores.

You may wonder whether you should pay off your debts before you save for retirement, and many experts differ on their opinions as to what people should do. 

For example, some experts may recommend pausing those other money goals and focusing on paying off your debt first, particularly if you have high-interest credit card debt. However, others take the approach that you'll be paying bills for your entire life; you might as well take care of yourself first. (Especially if you haven't saved at all.) 

If your company offers a 401(k) match, most experts agree that you should invest up to the limit to get your free money. At this point, you can consider whether or not you want to tackle debt repayment.

Tip 5: Set limits on saving for education. 

Many well-intentioned parents hear a common message loud and clear: "You must save for education!" 

However, you need to strongly consider not contributing to your children's education if you're behind on your own savings goals. Your kids can always get financial aid, take out student loans and work to pay for college. They can take out a loan to go to college but you can't take out a loan for retirement!

Tip 6: Commit. You can't afford not to.

Commit to retirement savings and go for it with gusto. Your commitment means everything. If you start to waffle and even cancel your retirement contributions, you can damage your future.

Commit to saving every month without question and pay yourself first. In addition, try to max out your retirement contributions to your 401(k). 

If you initially think, "I can't afford to save all this money!", switch your thinking to, "I can't afford not to. If I don't save for retirement now, I won't have enough money for retirement."

Change Your Trajectory for Your Future

Did you spend your first 20 years of employment goofing around regarding your retirement savings? It's time to get serious! Realize that it's still possible to save enough money for retirement. In fact, it's completely possible to achieve a $1 million nest egg even if you get a late start.  

If you're worried about making the numbers work, budget. Cut back on travel or other unneeded expenses. It's completely worth it to make these sacrifices now if you want to save enough for retirement. 

If you're not sure about your abilities to make decisions, talk to an investment professional. The plan advisors at your job can also advise you and help you choose the investments that work for you.