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Smart Tips to Saving for Retirement at 40 or 50

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Retirement may still seem—and be—decades away. But this is a prime time to start thinking about how much you'll need. Depending on your financial situation, that could mean anything from upping your monthly retirement contributions to paying off high-interest debt to starting a 529 plan.

Without any attention given to it, some may find the balance of their retirement accounts not where they need to be to have the future they’d like. While it’s true that those who start earlier do better, it’s never too late to improve your retirement picture. Here are some smart money moves to consider when saving for retirement in your 40s and 50s.

Progress Report: Where Your Savings Should Be Now

A typical retirement question for people ages 40 or 50 is: How much should I have saved? Everyone’s situation is different, but here’s a quick rule of thumb to help you see where you may stand.

At age 40, a common recommendation is that you aim to have between two to three times your annual salary socked away for retirement. In your 40s, you should also try putting between 10% and 15% of your yearly income in savings.

At 50? The strategy goes on to suggest that your retirement nest egg should be around four to five times your annual income, and your goal should be between 15% and 20% of your annual income.

As you consider your options, keep this in mind: longevity risk. If you retire at age 65, you should plan on 30 to 35 years of retirement. Also, women tend to live longer than men, so it’s essential for women to be active participants in the family retirement plan.

If you’re not quite on target with your retirement nest egg, don’t despair. Instead, take advantage of these smart strategies.

Start Here: Prioritize Paying Down High-Interest Debt

If you’ve got high-interest debts, it can be hard to decide what to prioritize. Do you pay down the debt and reduce the amount of money you can put away for retirement? Or set aside more for retirement and pay the minimum on your debt? While it doesn’t always feel like it, paying down debt is also an investment of sorts. Paying off debts such as credit cards or a personal loan, can give its own type of return, especially in your 40s and 50s. How? You may end up keeping more money by paying off high-interest debt faster because you may pay less interest overall.

The High Cost of Paying the Minimum

The High Cost of Paying the Minimum

The above calculation assumes you will not make additional purchases with this card. Source: Credit Card Minimum Payment Calculator, Bankrate®, accessed June 2021.

Take credit card debt, for example. In the chart, the total interest paid is $76,244. If instead of paying the $50 minimum, the person had invested the $50 per month at a 6% return for the same time period of 30 years, they would have close to $49,000.¹ Take that $49,000 versus the $76,244 paid in interest; and it seems wiser to have paid off the high-interest debt first.²

In addition, the emotional relief that comes with paying off debt is an investment in yourself and your well-being. TIP: Once you’ve paid off that debt, think about making the same payments toward increasing your retirement portfolio. Similarly, if you get a bonus or a raise, consider investing that increase.

Smart Money Moves When Saving for Retirement in Your 40s and 50s

With your high-interest debt reviewed, you can look for other ways to potentially increase your retirement savings. Here are some tactics to consider.

1. Take advantage of money on the table

Start looking for additional money to add into your retirement funds. Does your workplace match retirement contributions up to a certain amount? And, if so, are you meeting at least the minimum for that match? If not, try to boost your monthly contributions to capitalize on this benefit. This can be a relatively pain-free but powerful tactic to enhance your future retirement savings, especially if you are in your 40s and can eventually max out your contributions. Otherwise, you’re leaving money for retirement on the table every month.

2. In your 50s? Take advantage of 401(k) catch-up limits

With new 2023 IRS guidelines, anyone can put up to $22,500 (for 2023) of pretax salary each year into a 401(k) or other employer-sponsored plans such as a 403(b) or 457(b) plan. And once you hit age 50, that annual limit rises to $30,000 for 2023. Taking advantage of retirement catch-up limits can help you down the road.

3. Make your HSA a retirement vehicle

Similarly, does your employer offer a Health Savings Account (HSA) program with annual contributions? An HSA can be used for your medical expenses today, but it can also be used as a retirement account in the future. Contributions you make to your HSA are tax-deductible and can gain tax-deferred earnings. While you can withdraw, tax-free, from the account for medical expenses now, once you turn 65, you can use the remaining funds as retirement income or to fund rising health care costs.

4. Consider an appropriate IRA

Depending on where you are in your career trajectory, investing in different IRAs can provide different benefits. Much of your evaluation may depend on whether you think your tax bracket will be higher or lower after you retire. If you’re in your 40s in a lower income bracket, and anticipate your tax rate will go up, a Roth IRA might be the right choice. If you’re expecting to be at a lower tax rate when you withdraw from your IRA, a traditional IRA might be the better fit.

Another consideration for both Roth and traditional IRAs is that you can also make an additional catch-up contribution annually once you’re 50 or older.

5. Set automatic investments and increases

Using automatic investments and increases can be a great tool for your retirement contributions. Automatic investments can help you eliminate the guesswork of when to make new purchases. And automatic annual increases (even just 1% to 2%) in payroll deductions to your employer’s retirement plan can be so incremental that you may not notice it on your paycheck. But at the same time, you’re setting more aside for retirement.

Increasing Contributions Doesn’t Have to Break Your Paycheck

Source: American Century Investments, 2021.

Table is based on an annual salary of $42,000 and assumes a monthly paycheck, single employee with no dependents and a federal tax rate of 25%. Some states also provide savings for individuals who participate in an employer's retirement plan; however, FICA (U.S. federal payroll tax) and Medicare taxes are not reduced by a contribution. Rounded to the nearest dollar.

Leveling Up: Should You Make 529 Contributions?

If you’ve got a child or other relative you want to help with college costs, you may consider setting up a 529 education savings plan.

Creating a 529 plan can be a great tool to help you invest in college or other education for yourself or for a loved one. But take inventory of your progress towards your own retirement funding before establishing a 529 plan. Try setting up one only after you’re on track (or even ahead) with your retirement investing.

There are strategies for making smart money moves in your 40s and 50s.

Whether focusing on retirement at 40 or 50 (or later in your 50s or 60s), understanding how much you need to save is important. Along with this, you should consider other factors, such as whether your account mix is diversified to align with your risk tolerance, and whether you might need to consider how to make money in retirement.

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Dinkytown Future Value Calculator, American Century Investments, 2021.


The investment example is a hypothetical situation that contains assumptions that are intended for illustrative purposes only and are not representative of the performance of any security. There is no assurance similar results can be achieved, and this information should not be relied upon as a specific recommendation to buy or sell securities.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

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.

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.