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40 Years Old With Little To No Retirement Savings. Is It Too Late to Start?

According to the Federal Reserve Survey of Consumer Finances, the average 40 to 44 year old has $101,899.22 in retirement savings, but the median retirement savings (the midpoint for all respondents) was a mere $6,950. I find it interesting that the median is showing the average retirement savings is coming almost entirely from the top savers of this age group. It implies the vast majority of 40 to 44 year-olds have little to nothing saved for retirement.

While the average retirement savings of $101,899.22 may sound like a decent amount, the recommendation for a person in their 40s is to have 3-4 times their annual salary. If the average salary is around $50,000 a year, then the average retirement savings should be around $150,000-$200,000.

If you're behind the curve, you're not alone. According to The Employee Benefits Research Institute, 37% of all employees ages 35-44 and 34% of employees 36-54 have less than $1,000 saved for retirement. If you can relate to this statistic, don't feel that it's too late to get started!

Turn the bad into good

While falling behind is never a great feeling, it can be used for good. Take that fear or anxiety of not having enough saved and use it as motivation to make a positive change.

Let's say a person is 40. They haven't done so well saving for retirement. Do they have time to save up enough to retire on? Let's do the math.

Let's use an example of someone that's 40, established in their job, and making just over the average single income at $70,000 a year. They also start out with $1,000 already in their retirement account, and then they start contributing 15% of their income each year to their account (like through a 401k through their employer). That would be $10,500 a year, or $875 a month. If they were able to get an average market return of 10% a year, then they could have $1,173,036 by the time they turned 65.

The result.

In just 25 years, this person, if they buckled down, became serious with their spending habits, and stayed consistent with their contributions, could be a millionaire. In addition, you could reasonably assume that over the course of 25 years their salary would increase. If they kept the 15% contribution rate the same and their salary rose over time, then their contributions would increase as well -- thereby increasing the total at age 65.

Of course this is just an example, and as with all things involving a budget, it's easier said than done. But the idea here is it's never too late to take control of your own finances.

Tips to get started

Some may need to start by paying off debt. With the exception of a mortgage, and maybe a car payment (if the interest payment is lower than your expected investment return), all debt should be paid off first. In addition, create an emergency savings fund worth 3 to 6 months of living expenses. This will help you avoid taking early distributions from your retirement accounts, which incurs tax penalties and destroys the power of compound interest.

It can be overwhelming and stressful to think about, but doing nothing shouldn't be an option. Your future self is depending on you, don't let them down. Here at Concinnus Financial, we strive to help our clients to come up with a reasonable plan for them and help them to stick to it. Contact us to get started. If your employer doesn't offer a retirement plan we can help you get an IRA (individual retirement account) started for you.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk and you may lose your principal.

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