4 Ways to Catch-Up on Retirement Savings in Your 40s

4 Ways to Catch-Up on Retirement Savings in Your 40s

As you enter your 40s and get closer to retirement age, it may feel like you haven’t done enough to save. Maybe you got a late start, decreased your contributions, or had to make room in your budget for other, more pressing expenses in your past.

Don’t worry, life happens to everyone, and the best thing you can do to make up for lost time is to plan, plan, plan. Using a retirement calculator can help you assess where you are financially, and what you need to do to reach your future financial goals, while also helping you see how small changes to your contributions make big differences.

Read below for four ways to enhance your retirement savings in your 40s, and don’t forget to plug projections into the Slavic401k calculator to ensure your efforts make sense for you financially.

#1. Enroll in Your Employer’s Retirement Plan and Matching Program

If you haven’t enrolled in your employer’s 401(k) plan yet, it’s time to do it. 401(k) plans have annual contribution limits, meaning that you can contribute up to a certain amount of your salary each year to save for the future. In 2023, the limit is $22,500 for participants under the age of 50, and $30,000 for participants age 50 and older. By participating in the plan, you will build your retirement savings through various investments, such as mutual funds, aligning with your personal risk tolerance. Once you reach age 59 1/2, you can start withdrawing funds from the account for expenses.

Not only do employer-sponsored 401(k)s offer opportunities to save for the future, but some are tied to a match program, which help you save more money over time. Company match programs include your employer matching a percentage of your contributions to your account. For example, if you contribute 5% of your salary to your 401(k) plan, your employer may match a percentage of that as well, such as 3%. This means that in the same year, you are saving 8% towards your 401(k) instead of your initial 5%.

If your company offers it, you should take part in it. In your 40s, it can make a big difference in your retirement accounts and help you save more money in a shorter amount of time. Learn more about employer match programs through the Slavic401k blog.

#2. Open a Roth IRA

In your 40s, it’s likely that you’re more financially stable than you were in your early career. Because of this, finding ways to optimize your retirement savings is crucial. Roth IRAs are a great option for additional retirement savings that you can control outside of your employer-sponsored 401(k). Roth IRAs allow you to save thousands of extra dollars each year that grow tax-free for retirement, meaning you won’t owe any taxes on your funds when you withdraw them in retirement.

Consider this example for Roth IRA savings:

If you are 40 years old making a salary of $80,000 per year and contributing $6,000 annually to a Roth IRA, you can add upwards of $400,000 to your retirement savings efforts by the time you reach retirement age. That $400,000 is supplemental to your 401(k) savings, which, when combined, can be a solid cushion for retirement. To see your exact projections, use Nerdwallet’s Roth IRA calculator.

#3. Analyze Debt and Redistribute Funds

Another way to save for retirement is to analyze your debt and reevaluate budgets and funds. It’s important to understand where you stand today, so make sure you combine the totals of your credit cards, loans, and other sources of debt before readjusting your budget.

Once you understand your totals, look at the interest rates and pay down the balance with the highest interest rates first. Once that one is paid off, move onto the next, and so on. This method is called the debt snowball, which emphasizes paying high interest rates and balances first to ensure you aren’t paying more than you should over time.

By saving money on interest rates, you will have extra funds available to reallocate to retirement savings, such as increasing your 401(k) contributions, or adding discretionary funds to a Roth IRA plan. Either way, you are helping both your current and future self financially.

If you need help determining a payoff strategy, meet with a financial advisor before getting started. They can help you identify high interest loans and help you redistribute funds in your budget to make sure your payoff strategy makes sense for you financially.

#4. Rollover Previous Employer Retirement Plans

You’ve likely changed jobs over the course of your career. If that’s true, then you should consider consolidating all your 401(k) accounts together to avoid paying fees on multiple accounts.

Some employers offer 401(k) plans that come with management fees, and unless you know the ins and outs of your plans, you may be paying fees you can easily avoid.

With your current employer, ask about a rollover option to get old employer-sponsored 401(k) plans into your new account. You will have to contact old employers as well and fill out necessary paperwork to make sure that you qualify for a rollover, but it’s usually a simple process.

If you’re not sure where to start, contact your company’s HR team to discuss options for rolling over your funds, and remember, even if it seems easier to cash out and deposit funds into your new account, you will face penalties of early withdrawal fees, taxes, and more, so it’s recommended that you avoid withdrawing funds at all costs.

For additional retirement savings insights, visit the Slavic401k blog. There you can find financial education on ways to make, spend, and save money for the future.

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