It’s never too late to take control of your financial future. For many people, there are still at least 20–30 working years to save and invest appropriately. In your 40s, you’re likely in your peak earning years. This allows you to contribute more to your retirement savings than you could have earlier. By maximizing contributions to retirement accounts like 401(k)s or IRAs, you can make significant progress toward your retirement goals.
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Retirement planning mistakes to avoid in your 40s
Entering your 40s often means thinking about how you want to enjoy life after retirement. Of course, that means knowing how much you need to save in order to live that lifestyle comfortably. While many experts say you should have at least three times your annual salary saved for retirement by the time you’re in your 40s, the truth is, many people have not reached that benchmark.1 According to CNBC.com, the median amount saved for retirement by Americans between the ages of 40 and 49 is just $34,100.2
Whether you’ve been on track with your savings or are just starting to get serious about retirement, this decade is a critical period for retirement planning, and missteps can significantly impact your financial security later in life. To ensure that you’re on track for the retirement you’ve envisioned, let’s look at some common retirement planning mistakes—as well as some essential tips that can help secure your future.
The ten biggest retirement planning mistakes to avoid
In your 40s, you start to realize that retirement is closer than you think. But while today’s needs often feel more pressing, it’s important not to sacrifice your future financial security. Keep these pitfalls in mind:
- Not having a retirement plan: It’s important to develop a clear, actionable retirement plan. A financial professional can be a great help in going over your finances and providing a detailed strategy to help you reach your retirement goals.
- Ignoring employer matches: Many employers offer a 401(k) match, provided you contribute enough to your company’s 401(k) plan. Failing to contribute enough to get your employer's maximum 401(k) match is like leaving free money on the table.
- Not maximizing tax-advantaged accounts: Whenever possible, contribute the maximum amount allowed to your 401(k) or IRA so that you can take full advantage of their tax benefits. It’s also important to understand the differences between Roth and traditional IRAs. Roth IRAs offer tax-free growth and withdrawals because the contribution is made with the after-tax dollars, while traditional IRAs offer tax-deferred growth and its withdrawals are taxable. Taking a strategic approach to utilizing tax-advantaged accounts can make a big difference when you begin to draw down your savings. Please be aware that early withdrawals--any money taken from an IRA or 401(k) before the age of 59 ½—will be taxed as ordinary income and incur a 10% penalty tax.
- Underestimating longevity: People are living longer today than they did in the past. If you’re concerned about outliving your savings, you may want to consider buying an annuity, which allows you to build or convert some of your retirement savings into a guaranteed income stream that will last the rest of your life.3
- Failing to budget: Without a budget, you may overspend and jeopardize your retirement savings. Outline your retirement goals and calculate your retirement income and expenses (both essential and discretionary), including an emergency fund to cover unexpected expenses. Subtract your monthly expenses from your monthly income. If you have a surplus, you’re on the right track. If you have a deficit, you may need to adjust your expenses or find additional income sources.
- Not reviewing your plan: As you get older, your circumstances and needs may change. Regular reviews help adjust for changes in income, expenses, and goals.
- Overlooking healthcare costs: These can be substantial in retirement, so it’s important to plan accordingly. Even with Medicare, premiums, out-of-pocket expenses, and other costs can quickly add up. According to HealthView Services, a healthy 65-year-old couple who retired in 2023 will use almost 70% of their lifetime Social Security benefits to cover their medical costs in retirement.4
- Taking on new debt: Avoid accumulating new debt as you approach retirement. If you have existing debt, prioritize eliminating it. Focus on paying off high-interest debt such as credit cards to free up more money for retirement savings. Then develop a structured plan to tackle any remaining debt.
- Not considering long-term care: 70% of people age 65 and older will need some type of long-term care in their lives.5 So it’s important to consider the costs associated with nursing home facilities or at-home care.
- Ignoring professional guidance: Getting help from a financial professional can make a big difference. They can provide personalized guidance tailored to your unique situation, including helping to:
- Develop a solid retirement plan
- Ensure that your investment strategy aligns with your goals
- Recommend strategies for tax efficiency6
Investing in your future—how to plan for retirement in your 40s
Your 40s are a crucial period when your financial decisions can significantly impact your future. With 20–30 years until retirement, you still have ample time to build a strong financial foundation. If you can avoid the common pitfalls listed above, you’re already making good strides. To take you even further, here are some things you can do to boost your retirement readiness.
Purchase insurance
It’s important to have the right types of insurance. You probably have health insurance to cover your medical expenses, but if you have children, a business, or other dependents, life insurance is crucial to provide for them in case something happens to you. Consider term life insurance for a coverage that fits your budget, or a long-term solution such as whole life or variable life,7 which can provide cash value over time. And even if you don’t think you need it now, long-term care insurance can be a big help in easing the financial burden on your family.
Diversify and rebalance your portfolio
In your 40s, having a diversified investment portfolio is important. It may include stocks, bonds, mutual funds, and real estate. Diversification helps mitigate risk and ensures that you’re not overly reliant on any single investment.8 Likewise, you want to rebalance your portfolio regularly to ensure that it remains aligned with your risk tolerance and investment goals. In your 40s you still have plenty of time until retirement, so you don’t want to invest too conservatively just yet, as you may miss out on gains in the market.
Catch-up contributions
If you're behind on your retirement savings, you should consider taking advantage of catch-up contributions. The catch-up amount is decided by the IRS and is subject to change annually.
Even if you come late to retirement planning, there’s a lot you can accomplish in your 40s. By avoiding common mistakes and placing a strong emphasis on building your savings from here on out, you can set yourself up for a more secure future. Remember, it's never too late to take control of your financial well-being to ensure that you have the retirement you deserve.
Retirement planning mistakes to avoid in your 40s FAQs
Starting a Roth IRA at 40 is not only possible but also a wise financial decision. With tax-free growth, flexible withdrawal options, and no required minimum distributions, a Roth IRA can be a valuable tool in your retirement planning arsenal.
Experts suggest that by age 40, you should have three times your annual salary saved for retirement.1 According to 2023 data from the U.S. Bureau of Labor Statistics, the average annual income hovers around $62,000. 9 This means retirement savings goals for the average 40-something should be somewhere around $200,000.
Want to learn more about saving for retirement in your 40s?
A NYLIFE Securities financial services professional can help you build a retirement strategy that’s right for you.
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1Ben Geier, “Here's How Much Money You Should Have Saved for Retirement by Age 40,” October 23, 2023. cbsnews.com
2Cheyenne DeVon, “Here’s How Much Americans in Their 40s Have in Their 401(k)s,” July 13, 2023. cnbc.com.
3Guarantees are based on the claims-paying ability of the insurer.
4“Medicare and Social Security COLAs: Putting the 2023 Numbers into Context,” October 17, 2022. hvsfinancial.com.
5"How Much Care Will You Need?" February, 2020. U.S. Administration for Community Living, acl.gov
6Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
7Variable life insurance is offered through properly licensed registered representatives of NYLIFE Securities LLC (member FINRA/SIPC), a Licensed Insurance Agency and a New York Life Company.
8Diversifications does not assure a profit or protect against market loss.
9Kaz Weida, “How Much Money Should I Have Saved by 40?,” December 15, 2024. finance.yahoo.com