If you’re in your 40s and have saved more than $40,000 for retirement, you’re ahead of most people in your age group. However, you may need to take some proactive steps in order to retire comfortably.
The median 401(k) balance for Americans ages 40 to 49 is $38,600 in the fourth quarter of 2023, according to data from Fidelity Investments, the nation’s largest 401(k) provider. This means that half of account holders in this age range have savings above this balance and the other half have savings below.
Here’s how much Americans have in their 401(k)s by age, according to Fidelity.
For people in their 40s hoping to retire in their 60s, retirement gets closer every year. However, they are probably far from their savings goals.
By the time you reach your 40s, you should aim to save three times your salary for retirement, according to Fidelity guidelines. If you earn $80,000 a year, you would ideally have $240,000 saved for your post-working years.
Why Americans in their 40s haven’t been able to save more
Various factors have prevented this age group from increasing their pension contributions.
On the one hand, when many people in their 40s were starting their careers, they didn’t have the chance to benefit from reforms to the tax system, such as automatic enrollment, which automatically enrolls you in a 401(k) plan. your employer, and auto-escalation, which automatically increases your savings rate by a given percentage or amount each year, says Anne Lester, retirement expert and author of “Your Best Financial Life: Save Smart Now to the future you want.”
“They haven’t benefited from all the reforms that have happened in the 401(k) system over the last 15 years,” she told CNBC Make It. “A lot of Gen Xers have changed jobs, and maybe they’re contributing now, but they weren’t able to save in those early years if they didn’t sign up themselves. “
On top of that, many people in their 40s may find themselves in the “sandwich generation,” covering expenses related to both child care and caring for aging parents.
“It just takes a huge bite out of your wallet,” Lester says. “I think as people inevitably allocate scarce and limited resources, you may find yourself contributing less than you should.”
How people in their 40s can increase their retirement savings
If you’re in your 40s and your retirement savings aren’t where you’d like, there are a few ways to get started.
First, clearly understand where your retirement savings stand and what factors are within your control. Despite your contributions, your overall account balance may be affected by factors such as market volatility.
On the other hand, your savings rate, which is the percentage of your income you put toward your retirement investment accounts, is within your control.
This is why you need to make sure you contribute enough to get your company’s full match, if available. Fidelity recommends aiming for a savings rate of 15%, including any employer matching.
If you’re behind on your retirement savings, you may need to make short-term sacrifices so you can contribute even more to make up for the missed years, Lester says.
“I’m not saying it’s going to be easy,” she said. “If you’re in your 40s and haven’t saved anything for retirement, you may be looking at a savings rate of more than 30 percent.”
But it doesn’t have to be done all at once. You can use features like auto-escalation to increase your retirement savings rate by a few percentage points each year until you reach your goal.
Plus, as expenses related to caring for young children decrease, you can put that money toward your retirement.
“Those expenses will go down at some point and then you’ll need to redirect that money into savings,” Lester says. “Mentally plan this now so you don’t feel poor or deprived when you get some extra money.”
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