How Much Money Should You Have Saved by Age 40?

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Saving money is essential to secure a comfortable retirement, and the earlier you start, the better. You might have other plans for your future, too, like getting married, buying a house and traveling. That makes it important to build a savings habit and regularly examine how well your financial strategy supports your goals for the future.

If you're unsure whether you're on track with retirement savings, consider using a common rule of thumb: Experts recommend saving three times your current annual salary by the time you turn 40. It's also important to save three to six months of basic monthly expenses in an emergency fund so that your retirement savings stay intact even if unexpected financial hiccups arise.

Here's how to calculate your personal savings target for age 40, and what to do to get there.

How Much You Should Save by Age 40

First, it's important to remember that everyone's career and financial journey is very different, which means using a rule of thumb to develop a savings goal can be misleading. There are many legitimate and understandable reasons why you may not have saved as much as the experts have recommended, and you shouldn't feel any shame in not having reached those goals.

Still, having a guideline can encourage you to kick-start your savings plans, or it can help you relax knowing you're making good progress toward being prepared for retirement. Financial planning firm Fidelity recommends saving three times your salary for retirement by age 40. That means if you earn $50,000 per year, your goal by age 40 will be to have saved $150,000 across your retirement plans, including 401(k) and individual retirement accounts (IRA).

Fidelity got to this number by assuming you'll retire at 67 and maintain your current standard of living in retirement, which typically requires saving 10 times your income by age 67.

The typical 40-year-old, however, is on track to have less than that when it comes time to retire: The median value of retirement accounts among 35- to 44-year-olds is $60,000, according to the Federal Reserve's 2019 Survey of Consumer Finances. It isn't much better among 45- to 54-year-olds, who have $100,000 set aside at the median.

What to Consider When Saving for Retirement

Fidelity's guideline might not be realistic for you to achieve, depending on your personal goals and characteristics. For example, if you would like to—and are able to—work past age 67, or you're OK with lowering your expenses in retirement, you may be able to get by saving less.

On the other hand, maybe you'd prefer to stop working sooner, you have health concerns that could mean high health care costs, or you'd like to spend most of your retirement traveling. In those cases, saving more than the guideline would be wise.

Around age 40, you might be more settled in a career than when you were younger, and able to focus on increasing income. At the same time, it's possible your income is going toward multiple expenses like raising children and buying a home. That can create competing priorities with retirement saving.

But remember that, due to compound returns, the earlier you start investing for retirement, the more time your money will have to grow. Make it a prime consideration to keep saving for retirement in your younger years, even if it means cutting back at certain times. Ideally, you'll save 15% or more of your annual pre-tax income for retirement, or as close to 15% as you can.

How to Save More Money

If you're feeling overwhelmed by these saving recommendations, know that it's never too late to give your retirement or emergency fund a boost.

To save more for retirement, check whether your employer matches your 401(k) contributions. As an incentive to get you to save, companies may contribute up to 3% of your salary, for example, if you contribute at least that amount to your 401(k). Choosing not to take advantage of this incentive could mean missing out on a substantial amount of "free" money over time.

Even if your employer doesn't provide a match, or you don't have access to a 401(k) at all, you can create your own savings plan with an IRA or similar retirement investment tool. Make regular contributions to this account, and every time you get a raise, increase the amount you contribute to retirement from each paycheck. Put half of your tax refund or work bonus into your retirement account each year. Celebrate meeting saving milestones and get specific about the kind of retirement you want so you have concrete goals to work toward.

Also take a close look at your budget and see if there are expenses you can cut back to help increase the amount you're putting into your retirement savings. If you're feeling significantly behind, consider adding to your income by getting a second job so you can save more money every month.

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Using Savings Guidelines to Stay on Track

These recommendations can be worthwhile, but only as a starting point. It's most important to customize your retirement goals to your own situation, and to remember that saving for retirement is just one element of your financial life.

In your 40s, get clear on the standard of living you plan for in retirement, the age you'll likely stop working and the expenses that might make it difficult to meet your savings goals in the meantime. Use your income to build up a retirement account and to fortify your emergency fund, and remember to keep saving even when priorities change or additional ones come up. While having saved three times your salary for retirement by age 40 is the ideal scenario, getting as close as possible based on your current circumstances is a worthy goal.