How much savings should I have at 40? or rather, how much does the average 40 year old have in savings?
These are questions that tend to come up a lot. Maybe it’s because of the adage that life starts at 40. I think this is why many people are concerned with retirement savings at age 40.
There are those who are also concerned about starting retirement savings at 40. If you started saving early for retirement, this might shock you, but just know that people operate in different dimensions.
“How much should I have in savings at 40” mostly goes together with other questions like “what are the types of investments that you should have by age 40?”
These are terrific queries to ask yourself as a motivation factor as you strive for a brighter future.
Many people out there are purchasing expensive cars and property, but you ought to save some of your earnings for a better future in the long run as financial independence is important.
However, there is no specific answer to the question “how much retirement savings should I have at 40?”
Saving depends on numerous factors, including current earnings and the lifestyle you visualize for yourself after the age of 40.
All in all, saving for retirement is good, but not knowing whether you are saving enough can be very disturbing.
The bottom line is that the more you can save, the better for your future.
There are various ways to save for your future, but whichever way, the sooner you begin to save, the better for you.
According to a survey by Bank of America, about 16% of young people aged 20 to 30 years have $100,000 or more in savings.
This is a good growing trend among young people, compared to previous years when young people paid less attention to saving.
When you hit 40, you will be closing in on retirement. It is important that you work to ensure you save up for the life you want upon hitting that age. I normally hear people saying that life begins at 40. Do you concur with this?
The 401(k) saving plan is a good platform to save up for your later years.
In the US, those aged 40 to 49 years that save on this platform have an average balance of $102,700, and those between 30 to 40 years have an average balance of $42,400. This is based on information provided by Fidelity as of 2019.
This does not look bad, and when you begin to save up early, you could have much more retirement savings at age 40
However, it is important that more people endeavor to save.
According to most financial experts, you should ensure to have a minimum of 3 to 6 months living expenses in case of an emergency.
It is also advised that you should purpose to save about $1 million for your retirement.
In my opinion, I normally say that the amount is dependent on the lifestyle that you would want to adopt after retirement. You might save the $1 million as proposed, but it ends up being less based on how you are visualizing your life after retirement.
How Much Savings Should I Have at 40 Then?
It is advised that you save up to two or three times your yearly earnings to your retirement funds by the time you are 40.
From this, the equivalent of your savings by the time you are 50 should be around six times your annual salary, assuming you are to retire at the age of 67.
These safe recommendations help you secure a good life in your later years.
When you choose to retire much earlier, you will clearly need to save up much more.
Lifestyle decisions also have a great influence on an individual’s savings because the lifestyle you wish to have when you are 40 years and more, should match up to the money you are going to have.
If your wish would be to spend your later years playing fulltime golf, for instance, then you really must save enough to cater for that.
When you have finally retired, and the money you have saved is not adequate to cater for your desired lifestyle, you would be forced to adjust to a life that matches your finances, and this could easily lead to aspects like depression.
Keeping track of how much you have saved is a motivating factor.
You can achieve this by linking your savings information to an investment calculator. There are numerous investment calculators out there.
Are you still asking the question of how much savings should I have at 40? I hope by now you have an idea
Maybe I can also touch a little bit on the aspect of investing with regards to saving.
Saving and Investing by Age 40
I have mentioned above that there are people starting retirement savings at 40. It sounds awkward, but it happens.
Saving is good, but I always advise people not to just stockpile cash where possible.
Saving should not feel like piling up money. In as much as this sounds like a safe plan, it is not advisable to view it that way.
With current economic times, your savings returns would be much lower given that the economic inflation is currently higher than the returns earned by average savings accounts.
This means that your savings are losing in purchasing power.
The stock market might not offer guarantees, but it is advisable to invest your savings to help you earn more money upon retirement.
This is a good form of saving and investing. This is why you will see two people earning an equivalent amount of money, and living an almost equal lifestyle end up having contrasting retirement savings at age 40.
While you are avoiding to stockpile money, it is important to understand the varied available retirement accounts and having a retirement savings plan such as 401(K).
You also need to have a clear idea of when you are to retire, the kind of lifestyle you wish to have upon retirement as well as the money you will have accumulated by then.
You may have a retirement savings plan, such as the 401(K) plan.
It is, however, advisable that you have other savings accounts out there that you are using.
This is a good idea because of several factors like how the 401(K) plan has a contribution limit, whereby if you needed to save up much more than the plan’s limit, then it would have to be done elsewhere.
This would be a factor to consider for high-income earners, those who have started saving late or young people trying to achieve early financial independence.
With this factor, such people have to go out of their way to have additional savings account to compliment their 401(K) savings.
Another factor is because many pay up 401(K) contributions by paying up prior tax contributions.
You could have tax relief at the beginning, but then you will be expected to pay the taxes when the time comes for you to withdraw your savings.
Also Read: How to Pay Less Tax Legally
Sounds hectic, right?
So the moment you are asking yourself the question of how much savings should I have at 40, also try to ask yourself how you ought to be doing your saving.
You also need to have an additional savings platform due to the urge to have total financial independence, especially at a young age.
There are good savings plans out there where members are able to withdraw money without additional penalties.
We all wish to have financial independence as well as a good life upon retirement. The lifestyle you wish to have in your later years should give you a clear picture of how much you should save at 40 or by the time you retire.
When you are considering your retirement savings at age 40, you should also know that utilizing the funds/savings on investments would bring you more returns.
However, if this is something that you are afraid of, don’t do it for the sake of doing it.
It is better you just depend on your savings by ensuring they are safe wherever they are instead of losing everything while trying to invest.
I know at some point you have heard people talk on how they lost all of their life savings on certain investments. Would you like to be among them?
That is why it is important to conduct due diligence and do some soul searching before you make any decision on investing your life savings.
Do not invest in something just because others are doing it. Everyone has a reason as to why they are doing something.
By now, I know your question of how much savings should I have at 40 has been answered.