Key Takeaways:
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Many sources suggest aiming for around three times your annual salary saved by age 40, but everyone’s situation is different, so this isn’t always possible.
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Estimate future spending, subtract likely income sources (like Social Security), and the gap is your savings goal.
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Taxes can affect your take-home income during retirement, but some states don’t tax retirement income.
Turning 40 can make retirement feel more real. You likely have more responsibilities, a clearer sense of what you value most, and a desire to feel financially secure.
As you age, balancing various aspects of life can become more challenging, especially when it means spending more money, which is why it’s important to plan ahead. This guide from American Hartford Gold will help you understand how to set a savings goal.
Create a Target That Matches Your Lifestyle
Many sources suggest aiming to save around three times your annual salary by age 40, but everyone’s situation is different, so this isn’t always possible. The goal of retirement savings is to pay for what you want your future life to look like, so you should estimate what you expect that life to cost. Do you plan to travel often or stay close to home and focus on hobbies?
Do you plan to help your children with college? Will you carry a mortgage into retirement, or are you on track to be debt-free before then? Once you have your future lifestyle mapped out, turn it into a monthly budget. Include housing, utilities, groceries, transportation, and healthcare costs. Add line items for discretionary spending and an emergency buffer.
Turn Your Monthly Budget Into a Savings Goal
After you create your monthly budget, convert it to an annual figure. Then think about which income sources may cover a portion of it. Many individuals will have Social Security benefits later in life, and some will have a pension. The remaining gap is what your personal savings needs to cover.
From there, you can create a range. If you expect to spend $70,000 per year and your future income sources cover $30,000, your portfolio needs to cover the remaining $40,000. You can then decide whether your current savings rate is likely to close the gap by your target retirement age.
Which Accounts Count Towards Your Total?
Your retirement total can include workplace plans like a 401(k), 403(b), or 457(b), and IRAs. It can also include health savings accounts (HSAs) if you plan to use them for qualified medical expenses later. Some people also hold taxable savings that can support them during early retirement years or when making large purchases.
Workplace plans can be valuable because many employers make contributions. That could be in the form of a match, a fixed contribution, or profit sharing. If you’re able to, contribute enough to your 401(k) to earn the maximum match, it’s often one of the highest-impact steps you can take.
Prioritize Employer Match Without Straining Your Budget
If your employer offers a match, treat it like part of your pay. Try to contribute at least enough to receive the full match. If you can’t, start at a level you can comfortably maintain and increase it as your budget allows.
Consistency is most important, and smaller amounts over a long period are more beneficial than larger, infrequent deposits.
You should also make sure you understand vesting rules. The contributions you make are always yours, but employer contributions may vest over time. If you leave a job early, you may lose unvested employer contributions.
What To Do if You Feel Behind at 40
If you feel behind at 40, you’re not alone. Many people reach this age with conflicting priorities and an inconsistent savings history. Stop comparing yourself to others and focus on what you can control. You only need a few high-impact moves that you can easily repeat each month.
Start by reviewing your budget. Subscriptions, unused services, and impulse spending can negatively impact progress without you realizing it. Next, review any high-interest debt . Then focus on automating your retirement contributions so funds are set aside and you aren’t tempted to spend them.
A Simple Catch-Up Plan
Start with one change you can easily maintain for the next 12 months. That could mean increasing your contribution rate by 1% or setting up an automatic IRA transfer each month. Then add an annual increase schedule, such as increasing contributions after your yearly raise.
If you receive bonuses or tax refunds, decide ahead of time what portion goes into your retirement savings. Planning in advance reduces the likelihood of impulsively spending the money on something else. Over time, the gap between where you are and where you want to be will become smaller and less intimidating.
Where You Live Affects What You Keep
At 40, it’s smart to think beyond how much you need to save and consider what you’ll get to keep after taxes later in life. Retirement income can be taxed differently depending on where you live. Some states tax retirement income like regular income, while others don’t.
This doesn’t mean you should plan a move solely for the tax benefits, but it does mean tax considerations can be part of your long-term plan. If relocation was already on your mind, understanding the tax landscape early on helps you understand your options and what is manageable for you.
There are 13 states that don’t tax retirement income:
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Alaska
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Florida
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Nevada
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New Hampshire
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South Dakota
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Tennessee
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Texas
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Washington
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Wyoming
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Illinois
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Iowa
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Mississippi
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Pennsylvania
Some exemptions can depend on age and income type, so confirm the regulations that apply to your specific situation.
Compare Taxes Alongside Housing and Healthcare Costs
Taxes are only one factor to consider when developing a retirement budget. A state with no income tax can still be expensive to live in if housing, property taxes, or insurance premiums are high. Additionally, a state with retirement income exclusions may still tax wages or other income, which matters if you plan to work a part-time job during retirement.
Washington, for example, doesn’t tax ordinary income, but it has a capital gains tax that can apply to certain levels of taxable investment gains. In New Hampshire, the tax structure often shifts more of the financial burden toward property taxes, depending on the town.
Estimate the housing costs in neighborhoods you could potentially see yourself living in, then include utilities, insurance, and healthcare costs. When you compare expenses this way, the right decision often becomes clearer. The goal is to develop a plan that supports a lifestyle you can comfortably afford after leaving the workforce.
How To Plan for Housing, Health, and Family Costs
At 40, you likely have expenses that are more significant than they were in earlier years. Perhaps you’ve purchased a home or your children are starting at a new private high school, so you now have a tuition bill. Housing is often the largest monthly expense, especially for those who recently bought a home.
Healthcare costs also tend to increase over time since health needs often become more prevalent with age, and retirement planning needs to account for that. Family-related costs can be high, too. These can include childcare, education, and assistance for aging parents. These expenses help explain why many individuals don’t hit expected savings milestones by 40.
If your housing costs are high, even small changes can have a major impact over time. That might mean refinancing your mortgage if it makes sense for your situation, choosing a less expensive home the next time you relocate, or planning to pay off your mortgage earlier than you’re required to.
Healthcare planning can include understanding HSAs and creating a dedicated health budget. Family planning can include creating a specific savings plan for your children’s education or caregiving services for your parents. When you plan your future expenses intentionally, retirement saving becomes less stressful.
Create Separate Funds To Reduce Stress
One helpful method is to create individual funds for big expenses you can predict. You may want to have a home repair fund, a medical fund, an education fund, or a family support fund. Having dedicated funds removes the need to tap into your retirement money for emergencies, which means your progress won’t be thrown off.
A small monthly transfer to each fund can create real stability in the long term. Having separate funds also helps you avoid pausing retirement contributions during tough months. When savers repeatedly pause their contributions, progress slows more than they might expect. Automation is key, and separate funds create a buffer that enables you to make saving a consistent habit.
Save for Your Future With Precious Metals
The amount you should have saved for retirement at 40 largely depends on your individual situation. Build a personal target based on future spending and expected income sources. Focus on what you can control and plan for major costs like housing and healthcare.
If you want to explore additional ways to save for your future, consider physical gold. American Hartford Gold offers a Gold IRA for clients looking to protect their finances.
FAQs
Is there a “right” amount to have saved at 40?
There is no single number because income, lifestyle, and retirement timing differ for everyone. Many sources suggest saving around three times your annual salary by 40, but you should come up with a realistic figure based on your situation, so the goal is achievable.
What if I have very little saved at 40?
Start with a small, consistent contribution that you can maintain and automate. Try to take advantage of employer matching (if available) to speed up progress. Increase your contribution rate gradually, especially after raises or paying off high-interest debt. A steady and consistent plan is better than an aggressive one you can’t sustain.
How often should I check my retirement progress?
Two reviews per year are enough for most people. Set a date in the spring to adjust contributions, if necessary, and confirm that your totals add up to the correct amount.
Set a date in the fall to review your budget and benefits choices to ensure both still align with your goals. Routine checks are helpful because they allow you to fix any minor issues before they become significant.
Sources:
Social Security benefits and how to apply | USA.gov
Health Savings Account (HSA) | Healthcare.gov
