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7/16/2019

How Much Savings Should I Have at 40?

Turning 40 is a milestone. You may be going strong in your career, raising a family, purchasing or upgrading your home and comfortably managing your day-to-day expenses. Many people in the workforce will reach their peak earnings between the ages of 40 and 50. But while you may be earning more now than you have in the past, it’s important to ensure that you’re preparing for the future.

How much should I have saved for retirement?

Retirement may be years away, but if you’re 40 and planning on retiring at age 65, you’re almost at the halfway mark. With Social Security reserves a concern, and fewer employers offering pensions, putting away money today for your golden years tomorrow is essential.1

So how much should you have saved for retirement at this point in your life? There is no exact number for the amount of money you’ll need in retirement; it will vary based on where you live and your desired lifestyle. However, most financial experts recommend that by age 40 you should have retirement savings equal to twice your annual salary or more. According to Money magazine, “a 40-year-old couple with household income of $100,000 should have amassed savings of 2.6 times salary.”2

A stress-free retirement at a beachfront condo is a wonderful motive for saving—but retirement isn’t the only reason to build your nest egg.

How much emergency savings should I have?

Unfortunately, emergencies can and will happen at any stage of life. Cars break down, a natural disaster could damage your home, you could experience job loss, or you or a family member may have a medical emergency. Are you financially prepared? Research shows that most Americans are not. Bankrate reported that 23 percent of Americans had virtually no emergency savings and 22 percent had enough money in savings to cover fewer than three months of living expenses.3

The amount you should have in emergency savings depends on your stage of life and how much you are currently spending each month. In your forties, your student loans may be paid off, but you may have recurring monthly costs related to childcare, a mortgage, credit card debt or commuting to work. These should all be considered when determining how much you need for your emergency savings.

Greg McBride, chief financial analyst (CFA) for Bankrate.com, recommends that everyone should have enough emergency savings to “cover six months’ expenses, perhaps nine to 12 months for sole breadwinners or self-employed individuals.”4

Having an emergency savings account can help ensure that you won’t have to run up your credit cards or take out a loan if the inevitable unexpected should occur. 

Should I be saving for my children’s college education?

If you have children, establishing and growing a college fund can help them (and you) avoid the burden of student loan debt. According to research, 69 percent of college students in the Class of 2018 took out loans that averaged $29,800. Fourteen percent of their parents had federal Parent PLUS loans that averaged $35,600.5

How can I jump-start my savings?

Planning for retirement, emergencies and your children’s college education may seem overwhelming, but don’t get discouraged. If you’re in your forties or on the cusp of turning 40, and feel like you need to jump-start your savings, here are some tips:

Understand how much you should be saving every month

The first step in growing your savings is to calculate approximately how much you should be saving each month. Our calculators can help you crunch the numbers.

Once you have identified how much you need to save in each category, you can start building a strategy to reach that target.

Choose the right product for your goal

Not all savings products are right for every objective. For example, emergency funds should be allocated to a liquid savings product, such as a savings account or money market account. You’ll want to have quick and easy access to your money when you need it. If you’re saving for retirement or your child’s education, a CD may be a good choice. Your money will earn a higher fixed interest rate and will be safe and secure until your CD’s maturity date. Whichever product you choose, look for a bank that offers the most favorable interest rates and lowest fees.

Build wealth in your 40s by building a habit of savings

Adding money to your savings accounts consistently is key to helping you achieve your financial goals. Set up an automatic transfer so a designated amount of money will go directly from your paycheck or checking account into a savings account every week, month, etc. To earn the most for your money, choose a savings account, such as the CIT Bank Savings Builder account. With this account, you’ll be rewarded with a higher-than-average interest rate when you deposit $100 or more every month. It is a hassle-free way to build your savings, while maintaining access to your funds should an emergency arise.

Contribute to your 401(k)

You may not be able to rely on Social Security to cover your entire cost of living as a retiree. You will likely need to supplement it with your personal savings. One of the best retirement strategies is to participate in a 401(k) retirement plan if your employer offers one. Aim to save at least 10 percent of your salary. 401(k) plans use pre-tax dollars and some employers will match a certain percentage of your contributions.

While a 401(k) plan has many advantages, keep in mind that unlike a savings account or CD, your money is not FDIC-insured and can lose value. And if you withdraw your money before your retirement age, you’ll be subjected to a penalty.

If you feel like you’re not on an optimal savings track, don’t worry! Put these strategies into action now and you’ll be well on your way to reaching your financial goals.

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