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Financial Planning in Your 40s

People are seated around a table celebrating a person's birthday with cake and food. Balloons in the background show a four and a zero for the birthday age of 40.

If you’ve just turned 40, you might feel you still have a long way to go before retirement. But by 49, it can seem much closer, especially if you’ve been paying down debt instead of saving for retirement.

The decade between ages 40 and 49 can have a significant impact on your financial planning. Whether you’ve just entered your 40s or are on the cusp of turning 50, if you haven’t gotten serious about financial planning yet, don’t put it off much longer. Get started now to help meet your retirement goals.

Defining the 40-Somethings

While popular culture still depicts members of the millennial generation as 20-somethings living with multiple roommates in urban apartments, the oldest millennials were born in 1981, putting them and a growing number of ‘80s-born babies in their early 40s.

Individuals in their mid-40s are sometimes considered “xennials,” a term encompassing later-born members of Generation X (born 1965–80) and older millennials. Those in their late 40s are firm members of Gen X, with birthdates in the early 1970s and careers that launched as employers continued eliminating pension plans.

That’s an important historical point that defines the retirement planning process for most individuals in their 40s. Most don’t have the security of an employer-provided pension and are more likely to have worked for multiple companies during their 20s and 30s. If they didn’t contribute to 401(k) plans early in their career or worked for companies that didn’t offer a plan, they’ll have less than the recommended amount saved for retirement and possibly have more concerns about how long their money will last.

Give Me Some Positive News

Individuals in their 40s are entering their prime earning years, giving them potentially more money to put away for retirement than they might have had before—or helping them make up for lost time.

Find the financial planning strategies for your age (and read ahead to get ready for the next stage).

By 40, it’s a good guide to have between two to three times your annual salary saved for retirement.

Not there yet? The good news is that you have more time than your late-40s counterparts to catch up since you may be working longer before retirement. There’s also more time for your investments to benefit from compound interest.

Understand Compound Interest
Earning interest on interest? That’s powerful. Read how the impacts of this strategy can benefit you.

And think about your risk tolerance and when you plan to retire. You may have more time to recover from market downturns (and benefit from upswings). But remember that a broad mix of assets (aka diversification) is a practical strategy.

You can also consider putting 10%–15% of your yearly income away for retirement. And if you haven’t already, it’s a good idea to think about contributing to your workplace retirement account. If you can, try to get at least the full employer match. One employee benefits survey found that 82% of employers that offer a traditional 401(k) plan also offer some kind of employee match on contributions.¹

Opening an individual retirement account (IRA) may help you to save even more. There’s a limit to how much you can contribute annually to a workplace plan ($22,500 in 2023), so an IRA can be a place to invest additional money.

Think about paying down debt and starting (or continuing) to put away money for your children’s college education. That way, you can try to avoid saving for retirement and paying college bills at the same time. Whether your child has years to go before starting college or is much closer, you still have time to put some money in a 529 Education Savings Account for their future.

Much of the same guidance for the early 40s folks applies to individuals in their mid-40s, too, although you may want to put your efforts into overdrive to get the maximum benefit.

You might start putting 10%–15% of your yearly income away for the future (or evaluate if you can increase that amount if you’ve already started). Keep maximizing your workplace retirement plan to secure an employer match, and consider increasing your contribution if you can. Keep paying down debt, and if you’re starting to send children to college, make sure you balance paying for their education and saving for your own retirement. Does it make sense for you to open an IRA and contribute the maximum allowed under current IRS guidelines?

Start to Minimize Risk

Every situation is different, but begin considering ways to minimize risk in your portfolio and make sure you’re well-diversified the closer you get to retirement. This may help your investments weather the ups and downs of the market better.

It’s time to focus. While retirement might still feel far away, think about this—if you’re celebrating your 50th birthday in the upcoming year, you’re just 11 years away from the age that many millennials expect to retire.²

Review the ideas for the Early 40s and Mid 40s groups to see if there are ones you may want to consider if you haven’t already. If you have put any of these into action, a next step could be bumping up the amounts you contribute.

In your late 40s, your salary may likely be higher now than it was in your early 40s, giving you potentially more resources to invest. The federal government also offers opportunities for those over 50 to catch up on retirement savings with extra contributions each year. You can begin making additional contributions in the calendar year you turn 50, allowing many 49-year-olds to start taking advantage of it.

People in their late-40s also want to consider how much risk they have in their investment portfolio. Too much risk and you could lose a large amount; too little and you might not keep up with inflation. There’s a balance. See if it makes sense to start making your portfolio less stock-heavy since you have less time before retirement to rebound from market losses.

Be Prepared

Health issues and other unforeseen circumstances can force people into it earlier than planned. Preparing now for retirement can help prevent financial struggles down the road.

Get Started Today

One size doesn’t fit all for financial planning in your 40s, and what strategies you take and how long until retirement can impact your overall planning. Do what you can, no matter where you are. Those in their early 40s might have less to invest, but compounding can help. Those in their late 40s may be able to contribute more because they are making more money.

Your 40s aren't too late to start financial planning. Getting started today can help you meet your goals.

Explore More Insights

Read our latest articles and market perspectives.

Employee Benefits 2021: XpertHR Survey Report.

Multigenerational Survey Shows How Retirement Planning Is Changing, Investopedia, April 4, 2022.

Diversification does not assure a profit nor does it protect against loss of principal.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.