As we grow old, one worry bothers everyone: How much savings should I have at 40? Let’s find out! Since you enter the “employment” stage, where you become responsible and start earning, you must have heard everyone talk about the retirement phase, when money is needed the most. Retirement means having enough money to survive for the rest of your life without working. That’s only possible when you start setting some money aside.
Most people are reckless with their money, and if that’s you, then you are going to face some problems down the road. It’s never too late to start thinking about saving some money just so you don’t feel helpless when the need arises. Turning 40 is a milestone, and it’s high time you start thinking about your nest egg. Let’s discuss how to understand your current financial situation and how much savings you may require when you turn 40.
Assessing Your Current Financial Situation
Before you determine how much money you need to have at the age of 40, you need to assess your current finances. Collect all financial documents, including bank statements, bills, pay stubs, and investment statements. You also need to consider your assets.
Analyze your daily, weekly, and monthly spending. Also, assess any pending debts. Once you have all this information, you can find out the average savings one needs to have at the age of 40.
What is the Average Savings at 40?
According to the Federal Reserve’s 2019 Consumer Finances survey, the savings of anyone at the age of 40 should be about $91,110. Most people don’t have that kind of savings. In fact, only about 55% of people have a retirement account, and the average savings is about $60,000.
Furthermore, many of these people have student loans, credit card balances, and other personal loans, such as home mortgage loans and health loans, which make it difficult for them to save.
How to Save More Money at 40?
To save more money at 40, consider these strategies that will boost your savings:
Alternative income opportunities: Increase your income by looking for opportunities to boost it through a raise, promotion or side hustle. You can look for passive income ideas and double your earnings.
Cut unnecessary expenses: Review your monthly expenses and identify areas for cost reduction, such as dining out less frequently, negotiating lower bills, or downsizing certain expenses.
Pay off all your debt: If you’ve taken out a loan or debt, focus on paying it back to free up more money for savings. When you are out shopping, look for discounts, coupons and sales.
Review subscriptions: Review all your OTT, newspaper, and magazine subscriptions. Cancel or downgrade subscriptions and memberships you no longer use or need to free up extra cash.
How Much Money Should You Have Saved by 40, According to Financial Experts?
According to financial experts, people should have at least 200% to 300% of their current annual salary as savings by the time they turn 40. To improve savings, it’s also important to pay off all existing debt and reduce unnecessary expenses. According to professionals, the average retirement savings in a 401(k) for the 40-45 age group is $90,774.
Financial expert Brent Weis suggests, “The most important thing you can do is sit down and define the life you want to live and the things that matter most to you so you can be more intentional about how you spend your money.”
Strategies for Boosting Savings at 40
The age of 40 is a pivotal moment in many people’s lives and there is always time to start thinking about planning. Here are some strategies you can opt to boost your savings at 40:
- Set clear financial goals by defining how much money you want to see in your bank account when you reach 50 or 60.
- Take advantage of employer-sponsored retirement plans like 401(k)s or IRAs and contribute the maximum allowable retirement amount, especially if you still need to.
- Sometimes, we give in to our temptations and spend our salary as soon as it gets credited. So, set up automatic transfers from your paycheck to your savings account to ensure consistent savings without relying on willpower.
Savings Expense Categories
What are the savings categories that strike you when you hit 40? Read along and find out:
Emergency Savings
The biggest hassle of life is that you can never predict the future. However, you can be prepared to face it by being smart about your savings. You can set aside a portion of your monthly income for unforeseen expenses. God forbid, what if you lose your job? What if you have a broken tile in the kitchen? What if a family member falls sick? That’s why you need emergency savings, and according to experts, these emergency savings should hold at least 3-6 months’ salary.
Healthcare Expense Savings
There is no denying that the healthcare industry is expensive. When you don’t have a steady income, your retirement savings should also cover this part. It’s best to enroll in a health savings account (HSA), which will give you tax benefits.
Retirement Planning
It is of utmost importance since you won’t be earning for the rest of your life. You need to save money to retire peacefully. The general rule for retirement planning at 40 is to have three times more money than your current yearly income.
Home Costs and Family Expenses
Home costs include your children’s school and college education, whereas family expenses include their wedding, buying a car, going on family vacations, etc.
Tips to Increase Retirement Savings
Here are some tips to increase your retirement savings:
Start Early: The earlier you start saving for retirement, the more time your investments will have to grow. Even small contributions made consistently over time can accumulate significantly.
Increase Your Savings Gradually: Slowly increase your retirement contributions over time, especially whenever you receive a raise or windfall. For example, aim to contribute 10-15% of your income to retirement savings. Next year, you can set aside 20-24% of your income.
Invest Wisely: Allocate your retirement savings into a diversified portfolio of investments based on your risk tolerance and time horizon.
Continuously Monitor, Review and Adjust: Regularly review your retirement savings strategy and adjust as needed based on changes in your financial situation, investment performance, and retirement goals.
Common Mistakes to Avoid
People make many common mistakes when trying to save money at the age of 40. For example:
- Failing to estimate retirement expenses can lead to insufficient savings accurately. When determining retirement savings goals, people forget to assess factors like healthcare costs, inflation and lifestyle expectations.
- Tapping into retirement savings whenever you want is a big mistake, and it can jeopardize your long-term financial security.
- Relying too much on Social Security advantages to fund your retirement without increasing your personal savings.
Conclusion
We get it. It’s a lot of information to process at the moment but that’s how you can minimize problems and maximize savings. Lastly, don’t ever try to pay off high-interest debt, as it can effectively hinder your ability to save for retirement. Also, Beem‘s budget planner can help plan your money better. Spend, save, plan and protect your money like an expert with on-point financial insights and recommendations using Beem’s Better Financial Feed ™.
