I’m 40 With No Retirement Savings. How Do I Get on Track?

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You’re not doomed if you don’t have long-term savings by 40. Here’s how to turn things around. [[{“value”:”

When life’s expenses start to mount, IRA or 401(k) plan contributions can fall by the wayside. So if you’ve reached the age of 40 without any retirement savings to your name, don’t panic or beat yourself up.

Fidelity recommends having three times your salary saved by age 40, but many people get a much slower start. If you’re now in catch-up mode, though, there’s a strategic approach to building a nest egg it pays to take.

Let the stock market help you grow your savings

By age 40, you’re likely almost 20 years into your career. That’s a lot of missed opportunity on the savings front, which is bad news.

But there’s good news, too. You might still have a good 25 years of work ahead of you. And during that time, you can easily catch up on your savings and approach retirement with a lot more confidence.

To do so, though, you’ll need to do more than just start carving out room for IRA or 401(k) contributions in your budget. You’ll also need to invest your money so that it grows efficiently. And stocks are probably your best bet.

Over the past 50 years, the stock market has delivered an average annual return of 10%. That number accounts for years of solid gains and years when the market slumped.

So let’s say you’re able to start saving $300 a month for retirement at age 40, and you do so for 25 years. If you invest conservatively (meaning, not too many stocks and a larger concentration of bonds and cash), you might average a 5% return over time, leaving you with about $172,000.

But if you go all-in on stocks and score a 10% return in your portfolio, you’re looking at retiring with $354,000 instead. That’s $154,000 more than the median $200,000 retirement savings balance among Americans aged 65 to 74, according to Federal Reserve data.

Working longer could help, too

Another thing you can do to make up for lost savings years? Consider extending your career a bit longer. Doing so can serve two purposes — adding to your nest egg, but also, leaving your existing savings untouched.

In fact, let’s say that in the example above, instead of saving $300 a month from ages 40 to 65, you do so until age 67. At a 10% return, you could have a balance of about $436,000 instead of $354,000.

And clearly, the majority of that $82,000 difference won’t be coming from two more years of retirement plan contributions of $300 per month. Rather, it’ll come from investment gains in your portfolio — the portfolio you can leave intact if you retire a bit later.

If you’ve reached the age of 40 without any retirement savings, know this: You’re certainly not the first person in history to land in that position. But also know that your situation can be salvaged. You just need to prepare to start saving immediately, invest wisely, and consider working a touch longer than you may have initially anticipated.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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