Those intermittent aches and pains in your 40s are a very powerful reminder that retirement isn’t as far away as it used to be. But with two decades or more to go, you still have many years of disciplined, systematic savings in front of you.
To get the most of the next few decades, it’s important to figure out where you are now. That way you can make any necessary adjustments. If by 40, you have accumulated a nest egg that is two or three times your annual salary, saving about 10% a year until retirement will give you a reasonable chance of accumulating enough money, according to T. Rowe Price Associates in Baltimore.
For those who are coming to the retirement savings game late, the good news is that your 40s happen to coincide with your peak earning years. So you might have more money available to put away. If you’ve amassed just 1.5 times your salary at age 40, you’ll need to save 15% of your pay, and if you’ve got the same amount at age 45, you’ll need to save 25%. “Starting late is better than not starting at all,” says Pam Hess, director of retirement research at Hewitt Associates in Lincolnshire, Illinois.
Of course, complicating this picture is that there are so many competing demands for your money when you’re in 40s including your children’s college education, your mortgage, and perhaps caring for aging parents. It’s not surprising that this group is called the “Sandwich Generation.” “There are significant pressures that tug and pull people in this age group and could cause them to get off track,” says Andrew Eschruth, associate director for external relations with the Center for Retirement Research at Boston College.
The advice from financial experts on that score, however, is “help yourself first,” says Stuart Ritter, financial planner with T. Rowe Price.
Your children can find other sources of college funding, whether it be loans, grants or work-study programs. “But there is no scholarship for best retiree,” Ritter says.
Parents are different. They may not have access to any other money. If you are assisting them financially, at the very least, contribute enough in your company-sponsored 401(k) plan to get the employer match.One critical mistake that people in this age group make is planning on early retirement. That may be a dream of many Americans, but it’s often unrealistic to expect that you’ll be able to support your lifestyle for several decades if you stop working earlier than usual. If you have mountains of cash, then of course you can do that. But most people are woefully under-funded for retirement even in their 60s, so trying to pull this off
earlier may be unrealistic. Working just a few more years longer can pay off big, according to the Center for Retirement Research. For example, working eight years longer could increase the amount of your nest egg by 75%.With 20-plus years to go, you still need to populate your nest egg with investments that can grow. Michael Francis, a financial planner in Milwaukee, Wisconsin who counsels 401(k) participants, advises 40-somethings to maintain an 80% exposure to stocks. T. Rowe Price goes even further and recommends all equities until your 50s. The exact mix you choose might fall somewhere in the middle, but the point is to go for growth.