40s is an important decade professionally. You would be earning better, enjoying a good lifestyle and climbing the professional ladder. But it also a critical year to plan and save for your retirement.
Here are 5 ways you can save for retirement if you are in your 40s.
- Set Up a 401(k)
A 401(k) is an employer-established retirement savings plan. It allows you to defer a portion of your salary for retirement. You can defer taxes on a pre- or post-tax basis. Moreover, some employers match employees’ 401(k) plan up to a certain percentage.
Take advantage of this option. If the employer matches your contribution, that would be additional money for the retirement.
You may want to fund your 401(k) up to $18,500, the maximum 401(k) contribution limit for individuals under the age of 50.
- Monitor Your Expenses
When you are in your 40s, you will be financially capable of buying a car, house or travel as you wish. But if you are not careful, you may end up spending more money than you should. If you monitor your expenses, you will save more money for retirement.
Use the saved money to fund self-directed IRA if you max out on a pre-tax employer-based 401(k). Automate and direct some amount from your checking account into the IRA. Even if you save a small amount, it will add up by the time you retire.
Avoid having a lavish lifestyle now so that you can have a comfortable retirement later.
- Eliminate Debt
If you have any outstanding debt, allocate some time and resources to analyze how to eliminate it.
Prioritize high-interest and credit card debt first and pay that off. After that, you can focus on paying the mortgage and any other debt you owe.
When you are debt-free, you won’t have to worry about it after you retire.
- Be Flexible
Be flexible when it comes to saving money for retirement. If your planned retirement options fail to deliver the results, you must try other options to minimize losses.
Keep a diversified portfolio to build retirement savings from a variety of investments. Do not put all the retirement eggs in one basket as it will increase your risk.
- Educate Yourself
You must be proactive about making yourself financially literate. Learn the basic financial concepts and be actively involved in building your wealth.
If you are not aware of the different financial options that you can consider, take help of a financial advisor. They will help you understand everything you need to know about handling finances well and how to proceed with retirement planning.
You can learn from books, online resources and people who have already retired. These may give you a roadmap to saving successfully.
Retirement planning is important regardless of your age. However, if you are 40 and think you haven’t saved enough for retirement, it’s not too late to start. By taking the right steps, you can successfully save enough money to have a comfortable and financially secure retirement.