How to Plan for Retirement in Your 40s

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If you'd like to plan for retirement, your 40s can be both a critically important and an exceptionally difficult time for your plan. It's important because if you want a decent nest egg by a typical retirement age, starting in your 40s represents your last decent chance of letting compounding do much of the heavy lifting for you. It can be challenging because you're got a high likelihood of being part of the "sandwich generation,"taking care of both your aging parents and your children.

As a result, if you're in your 40s and haven't yet started planning for your retirement, it could take some tough priority calls to get started. But they are priority calls that you should make in favor of your retirement. Because as tough as it may seem to start now, it only gets tougher the longer you wait, and while you can borrow for virtually every other financial priority, you can't effectively borrow to cover retirement.

What a plan for retirement in your 40s looks like In your 40s, you're still able to use both Individual Retirement Accounts (IRAs) and company-sponsored retirement plans like 401(k), 403(b), or TSP plans to save tax deferred for your retirement. Those plans can provide a cornerstone of your future retirement, but depending on what you think you'll need to retire and when you plan to retire, they may or may not be enough on their own.

As a 40-something year old with a job, you're able to sock away as much as $5,500 each year in your IRA and $18,000 per year in your 401(k) or similar employer sponsored retirement plan. That's $23,500 per year -- or nearly $2,000 per month -- that you can sock away in a tax-advantage manner for your future. Depending on where you are in your 40s, when you plan to retire, what rate of return you expect to earn, and what lifestyle you're expecting, socking that much away may be enough to let you reach your target.

The table below shows you how much you have to invest each month to reach a $1,000,000 nest egg by age 65, depending on what rate of return you earn and what age you're starting at.

Current Age

10% Annual Returns

8% Annual Returns

6% Annual Returns

4% Annual Returns





















As you can see, the deeper into your 40s you get, the less the benefit you get from compounding, and the more your contributions need to be to let your nest egg reach the same ending spot at age 65. While you may not need $1,000,000 to retire comfortably, the fact that the benefits from compounding shrink substantially the longer you wait to get started holds true no matter what your target may be.

While a comfortable retirement is still achievable for a 40-something who's just starting out, qualified retirement plans like IRAs and 401(k)s may not be enough on their own. Particularly if:

  • You're near the tail end of your 40s,
  • You're not willing to be "all in" in stocks, or
  • You're expecting annual stock market returns below the approximately 10% historical levels ...

... you may need to save outside of your retirement accounts to meet your targets. Fortunately, you can invest in an ordinary brokerage account and simply earmark the money for your retirement. While you do lose out on the tax advantages of qualified retirement plans, you do gain the benefits of being able to withdraw your money from an ordinary brokerage account at any time, without penalty.

Get started now If you haven't started saving for your retirement yet, your 40s may very well be your last, best hope for a comfortable retirement at a traditional retirement age. The money you sock away today still has time to compound on your behalf to provide a great foundation for your future.

In addition to yourself, consider your retirement planning a gift to your children, too. If you're feeling the squeeze from being the center of the sandwich generation, remember that the money you have at retirement is money your kids don't have to spend out of their pockets to take care of you. When it's their turn at the center of the sandwich, both you and they will be grateful for your nest egg and its ability to ease the burden of your care.

The article How to Plan for Retirement in Your 40s originally appeared on

Chuck Saletta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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