A recent study reported that Generation X workers, which includes workers currently in their 40s, have saved $66,000 across all their retirement accounts. That’s not going to cut it! Realistically, you’ll likely need enough savings to replace 80% or more of your preretirement earnings to maintain your lifestyle throughout your golden years.
If you’re not where you should be with your retirement savings, you’re not alone. Many Americans are in the same boat. But now it’s time to get serious about your future.
Here are three ways to get back on track:
Know your portfolio & Max out your retirement plans: Meet with a financial advisor and make sure you’re investing the recommended 15% of your annual income in retirement accounts like a 401(k) or a Roth IRA. Automate your contributions if you’re not already doing so. Every time you get a raise, add it to your retirement savings. If your workplace offers a retirement plan like a 401k, 403(b), or 457(b), you’ll also want to take advantage of any employer matches as well. You can also max out both a 401k and IRA in the same year, as long as you meet the IRS qualifications.
Don’t borrow money from your retirement account. Find other ways to pay for unexpected medical bills, home improvements and college expenses. Raiding your 401(k) will sabotage your retirement savings, and if you lose your job and still have an outstanding 401(k) loan balance, you probably have to pay that money back very quickly. Don’t do it!
If you have a mortgage, start paying it down. If you have a $250,000 balance on a 15-year fixed-rate mortgage with a 4% interest rate and you can pay an extra $300 each month, you could pay off your home two-and-a-half years early. The goal is to create a mortgage-free retirement as soon as you can and boost your retirement savings to make up for lost time.
Invest your money to accelerate building wealth: Investing in index funds can allow you to buy fractional shares of the top-performing companies on the market. While you won’t earn as large of a return as you would if you invested fully in a high-performing company, you’ll be able to minimize your risk by spreading it across multiple top-rated companies. Popular index fund options include the Vanguard 500 and Fidelity 500.
Reduce your spending: Saving as much money as you plan out how to build wealth in your 40s is important. Most especially if you don’t have much of a nest egg already saved. If you’re struggling to max out your retirement accounts or save more money, cutting back your expenses might help.
Create multiple income streams: Adding additional income streams is also a great way to boost your income and savings. Best of all, you don’t have to work nonstop in order to add additional income. Instead, try freelancing a few hours a week, working at a shop you enjoy part-time, or finding remote part-time opportunities.
Don't get discouraged; you still have plenty of time to save for retirement, so craft a plan and watch as your wealth grows.