Denver, CO – Many Americans in their 40s with over $40,000 saved for retirement are considered ahead of their peers. However, there are proactive steps they may need to take to ensure a comfortable retirement.
According to data from Fidelity Investments, the median 401(k) balance for Americans aged 40 to 49 is $38,600 as of the fourth quarter of 2023. This balance serves as a benchmark, with half of account holders in this age range having savings above it and the other half below.
For those in their 40s looking to retire in their 60s, the goal of retirement is within reach, but savings goals may still be far off. Fidelity recommends having three times your salary saved for retirement by the time you reach your 40s. This means that if you earn $80,000 annually, ideally, you should have $240,000 saved for your post-work years.
Various factors have hindered this age cohort’s ability to increase their retirement contributions. Many missed out on early savings opportunities due to a lack of benefit from reforms such as auto-enrollment or auto-escalation in 401(k) plans.
Additionally, individuals in their 40s may find themselves in the “sandwich generation,” juggling expenses related to child care and caring for aging parents. This situation can take a significant toll on finances, leading to lower contributions towards retirement savings.
To get back on track with retirement savings in your 40s, it is essential to gain a clear understanding of your current savings and identify factors within your control. While market volatility can impact your overall balance, your savings rate is a crucial factor that you can control. Aim for a savings rate of 15%, including any employer match, as recommended by Fidelity.
If you find yourself behind on retirement savings, consider making short-term sacrifices to increase your savings rate. Auto-escalation features can help gradually increase your savings rate until you meet your goal, especially as expenses related to child-rearing decrease.
By planning for future changes in expenses and redirecting that money towards savings, individuals in their 40s can gradually improve their retirement savings outlook. It may require dedication and adjustments, but it is possible to boost retirement savings, even later in life.