Here’s How Much You Should Be Saving for Retirement Every Year in Your 40s

Generally speaking, there’s no one specific answer to how much you should save for retirement . You’ll need to think about your current age, personal savings goals, planned retirement age, income, health and lifestyle needs. Not only do these factors affect how much you should save to reach your goals, but they can also influence how much money you can realistically save each year.

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But even though everyone’s got a different path to follow, there are a few general rules of thumb for saving for retirement in your 40s. Here are the main ones and some ways to reach your retirement savings goals — even if you’re starting a little bit late .

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Save 20% to 25% of Your Salary

In your 20s, you should generally try to save 10% to 15% of your annual salary. In your 30s, the range increases to 15% to 20%.

And in your 40s, you should shoot to get even more aggressive with your savings. Depending on where you’re at in your career, this should be feasible — though it might still require some dedicated effort and a few cutbacks on spending.

“In your 40s, it’s important to save around 20%-25% of your annual income for retirement,” said Dennis Shirshikov, finance professor at City University of New York (CUNY).

Say you’re earning $100,000 a year at the age of 40. You can calculate your savings based on your net income since this will give you a little more wiggle room in your monthly budget.

But if you can, do it based on your gross income instead. If you follow the 20%-25% rule, this means you should save between $20,000 and $25,000 each year.

As your income changes throughout your 40s, adjust your savings amount accordingly. If you feel like you’re behind on your retirement savings, or you have some extra room in your budget, you can always save more.

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You Should Ideally Save 3x to 6x Your Salary

According to Fidelity, you should ideally have three times your salary saved up by the time you’re 40 years old. If you averaged $60,000 a year throughout your 30s, you should have about $180,000 in savings — preferably in high-yield, tax-advantaged accounts.

This is the general rule for those who are just turning 40, but what about for those who are already in their 40s? Fidelity’s next recommendation is to have six times your salary — $360,000 for a $60,000 salary or $600,000 for a $100,000 salary — saved up by the time you hit 50.

Again, it all depends on your lifestyle needs and retirement goals. If you expect to have higher expenses after leaving the workforce, you might want to create a higher savings goal for yourself. You can also change how much you save based on where you’re at right now — and where you want to be.

“It’s wise to reassess your retirement goals and adjust your investment strategy accordingly,” Shirshikov said. “Consulting with a financial advisor can provide personalized guidance to ensure you’re on track to meet your retirement objectives.”

Capitalize On HSAs (And Other Tax-Advantaged Accounts)

For most people, their 40s are when they’re in their peak earning years. Yet, there’s also a lot of road ahead of you, meaning you have the opportunity to save even more and catch up if you’ve fallen short of your goals.

“[You] should try to maximize this period as you still have a long investment horizon ahead of you for your money to grow,” said Jason Dall’Acqua, CFP, founder and financial Aadvisor at Crest Wealth Advisors . “While living expenses may be higher, particularly if you have kids, try to max out your 401(k) through either pretax or Roth deferrals. Additionally, see whether your 401(k) offers after-tax contributions which allow you to contribute even more into your plan.”

In 2024, the maximum annual contribution limit for 401(k) plans is $23,000. The limit on IRAs is $7,000 a year — $8,000 for those ages 50 and up. You can have both types of plans for maximum savings.

But you don’t have to stop there. There are a few other types of plans that might be good additions to your overall retirement savings plan.

“Consider saving into a taxable brokerage account. You ideally want to have different ‘buckets’ of money to pull from in retirement — accounts with different tax characteristics. A taxable brokerage can provide you with flexibility, especially if you plan to retire early,” Dall’Acqua said.

And if you don’t already have one, or if you’ve been neglecting yours, consider adding to a health savings account (HSA) if you have a high-deductible health plan.

“An HSA is a great way to start saving early for health expenses in retirement since the money is withdrawn tax-free for qualified medical expenses,” Dall’Acqua said.

Once you turn 65, you can withdraw from your HSA for any purpose — though it will be considered taxable income if not used for qualified medical expenses.

Live Below Your Means

The idea of living below your means isn’t just for younger individuals with less disposable income. It’s sound advice for people at any age — 40s or otherwise. As you cut costs, save the difference.

“Try to lead a lifestyle that lets you out an additional 5% of your income into the market,” said Paul Tyler, chief marketing officer at Nassau Financial Group . “Maybe you drive your car a little longer or take the vacation a little closer to home. Over time, even a small, but consistent saving strategy will create financial freedom in later life.”

Living below your means, even if only a little, can also make it easier to catch up on your savings if you’re a bit behind or if your needs or goals change.

This article originally appeared on GOBankingRates.com : Here’s How Much You Should Be Saving for Retirement Every Year in Your 40s