As you enter your 40s and get closer to retirement age, it may feel like you haven’t done enough to save. Perhaps life threw some curveballs, leading to a late start, reduced contributions, or a budget stretched thin by other essential expenses.
Take a deep breath, life happens to everyone, and the best thing you can do to make up for lost time is to plan, plan, plan. Using a reliable retirement calculator can help you assess where you are financially, and help you pinpoint want you need to do to reach your future financial goals. You’ll be amazed at how even small adjustments to your contributions can create substantial long-term growth.
Ready to accelerate your retirement savings? Read below for four strategic ways to enhance your retirement savings in your 40s. Don’t forget to plug projections into the Slavic401k calculator to ensure your efforts make sense for your financial aspirations.
#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. 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
By your 40s, it’s likely you’ve achieved a greater degree of financial stability. This makes it an ideal time to explore additional avenues for optimizing your retirement savings. Roth IRAs are a smart money move right now. It is an excellent option that gives you direct control over your investments outside of your employer’s plan. Plus, if you have old 401(k)s sitting with past employers, consolidating them into a single IRA can make managing your retirement savings much easier.
The beauty of a Roth IRA lies in its tax-free growth and withdrawals in retirement. You contribute after-tax dollars, meaning that when you withdraw funds in retirement, they are completely tax-free – a huge advantage, especially if you anticipate being in a higher tax bracket later in life.
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
Throughout your career, you’ve likely transitioned between jobs. If so, you might have old 401(k) accounts scattered across different providers. It’s highly advisable to consolidate these accounts to simplify management and potentially avoid unnecessary fees.
Many older 401(k) plans can come with ongoing management fees that eat into your returns. By rolling over these funds into your current employer’s 401(k) or a personal IRA, you can streamline your retirement portfolio and gain better control over your investments.
To initiate a rollover, contact your current employer’s HR or benefits team to inquire about their process. You’ll also need to contact your previous employers or their plan administrators to obtain the necessary paperwork. While it might seem like a bit of administrative work, it’s typically a straightforward process.
Warning: Resist the urge to cash out old 401(k) accounts. Early withdrawals typically incur significant penalties and are subject to income taxes, severely diminishing your retirement savings. Always opt for a direct rollover to avoid these costly consequences.
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.
