Is it too late to start saving for retirement at age 40?

Fact Check Finance: If you haven’t started saving for retirement by age 40, it’s too late.

Fact Check Finance


Fact Check Finance is an occasional series that puts common money assertions to the test.


“Nearly one-quarter of Gen X is ‘not at all confident’ that they will achieve their financial goals, with their top financial fear including a lack of retirement savings.”

“Whether you’re living paycheck to paycheck or have been blindsided with unexpected expenses, hitting the big 4-0 with nothing in the bank for retirement isn’t ideal.”

“A 40-year-old with household income of $100,000 and $0 saved for retirement today may need to save 23% every year until retirement [at age 65].”

Everything you read about retirement saving—and, admittedly, just about everything I write on the topic—emphasizes the need to save early and often when you’re young. The reasonable inference: You’re totally doomed if you don’t. But what if, for whatever reason, you didn’t heed the “save early” advice? There’s still hope. Giving up just because you’re behind at age 40 is like a basketball coach (I’m not a huge sports fan, but stay with me here), with her team down big at halftime, telling her players: “There’s no way we can come back. Let’s throw in the towel.”

On the contrary, here’s a real pep talk: You can make a comeback.

That’s not to sugarcoat the situation. An oft-quoted (albeit oft-ridiculed) rule of thumb from Fidelity suggests: “Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.” Ambitious, to be sure. But you’re looking at 0x saved at 40, and you need to show some hustle. (Sports!) Whether you’ve been avoiding the subject for decades, or you just became aware of the urgency, you’ll need to step up your retirement savings ASAP.

“It’s just time to really make a plan,” said Cindy Hounsell, president of WISER (the Women’s Institute for a Secure Retirement). “You’re going to have to buckle down.”

How? The easy answer: Save more, spend less, and, most likely, work longer before you retire.

“Those are the levers you really have,” said Geoffrey T. Sanzenbacher, associate director of research at the Boston College Center for Retirement Research. “If you use them, you could be OK. Otherwise, you could be in trouble.”

You have to be more nuanced about saving than, say, a recent grad who, by funneling money into her 401(k), has a giant head start on building a nest egg, Sanzenbacher said. But the main takeaway is that it’s not too late.

Here’s how to make up for lost time and make retirement a reality.

Save more

First, figure out how much you actually have saved. Are you really starting at $0? Maybe there’s a small balance in a previous employer’s retirement plan or a rollover IRA that you forgot. How about some unredeemed savings bonds you got as a childhood gift? You might be able to scrape together a decent starting point by reclaiming these funds.

Next, set a goal. Normally, I recommend saving at least 10% to 15% of your take-home salary, but you’ll need to go beyond that to make up for those lost early saving years. (The next two levers, if used well, can eventually help reduce this savings rate to a more realistic level.)

Still, the numbers that get tossed around as must-haves for retirement ($1 million is a big one) can be intimidating. So ignore them. “Even if you’re not going to make it some target you have in mind, save whatever you can,” Sanzenbacher said. “If you’re going to work through 70 or so, you still have 30 years to save.”

First thing to do: Plow as much as you can into your 401(k)—at least enough to capture your employer’s entire matching contribution, and ideally more. The annual limit is $19,000; after you hit 50, you can contribute an extra $6,000 a year. Same goes for IRAs: Funnel $6,000 per year into your account, plus another $1,000 once you’re over 50. Both of these moves allow your savings to grow without the government taking out taxes—and that means tens of thousands of dollars more in savings for you over the long haul. Invest in index funds—low-cost, passively managed investments that track the broader stock market and have historically grown faster than any savings account.

One more pointer: “Don’t count on an inheritance,” Hounsell said. “Chances are, your parents are going to need that money before it comes from you.”

Spend less

Any debt you have will seriously hamper your newfound savings goals. So you’re going to need to cut back on money going out—especially if it’s money you don’t have (e.g., credit cards).

“You can’t keep living the way you’re living,” Hounsell said. “If you’re working today, and you think you don’t have extra money to put in your 401(k), imagine where you’ll be when you’re retired.”

Reducing spending is about more than just small wins like eating out less or cutting back on subscription services. Think about the extreme financial regimens of the early retirement (FIRE) community.

“It may mean you have to readjust your dreams,” Hounsell said. “You may have to do something that you think is the end of the world—like selling your house—but you’re doing what you need to make yourself happy in the long run.”

There is light at the end of the tunnel, however.

“Once you retire, a lot of expenditures associated with working are gone,” Sanzenbacher said. “People pay off their house. Reductions in income mean you pay less taxes. You don’t need to make retirement contributions anymore. You can maintain your standard of living with less.”

Work longer

“Use the savings you’re building now to delay claiming Social Security,” Sanzenbacher said, referring to the increased benefits that come with later retirement. “The longer you can work, the better.”

A 2018 Gallup poll showed that 30% of Americans expect Social Security to be a major source of retirement funding. They shouldn’t; this government safety net was never intended to be a bedrock source of income in retirement. That said, you can increase what’s coming to you by waiting to collect until age 70. Payments rise about 8% for each year you defer claiming Social Security past your “full” retirement age (67 for a present-day 40-year-old), until the maximum retirement age of 70.

Plan to hold off until then—or at least till you’re 68 or 69—to claim benefits, if your financial situation and health allow it.

Fact check verdict

False. All hope is not lost for if you’re just starting to save for retirement at age 40. You just need to set ambitious goals—and get right to work on them.

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