Retirement Saving: 40s and Beyond
Whether your retirement is a few years or a few decades away, you still have time to keep building up your nest egg. Here are some retirement savings strategies that can help keep you on track.
Max out your contributions to your 401(k) or other work-sponsored retirement plan, especially if you receive matching contributions from your employer.
What you can do now:
- Ask your HR department whether you’re contributing enough to get the full company match.
- If you can afford to contribute beyond your employer match amount, we recommend contributing the maximum annual amount whenever you can.
- If you're self-employed, contribute the maximum to your small business retirement plan. If you don’t have one yet, consider an Individual 401(k), a SEP-IRA, or a profit-sharing plan.
If you're age 50 or over, you can make additional "catch-up" contributions to eligible workplace retirement plans and IRAs.
What you can do now:
- Contact your workplace plan administrator to ask about contribution limits for your account.
- Read about 10 ways to save more for retirement.
According to the Schwab Center for Financial Research, your retirement portfolio should be 25 times larger than the amount you expect to withdraw from it in your first year of retirement.1
You'll need to account for sources of income other than your portfolio, such as Social Security benefits, pensions, or income properties. This will give you a full view of your income stream. From there you can determine how much of your expenses your non-portfolio income can cover, and what your portfolio will need to cover.
Example: Estimate Your Needs
|Total projected annual expenses in first year of retirement (including taxes)||$90,000|
|Minus predictable income (e.g., Social Security, pension, rental income)||($40,000)|
|= Annual amount you’ll need to withdraw from your portfolio||
|Retirement portfolio target goal:||$1,250,000|
If you've maxed out your tax-deferred 401(k) and can afford to save more, consider opening and fully funding an IRA, or a taxable savings or brokerage account specifically for retirement.
What you can do now:
- Compare your IRA options side by side, or use our Roth vs. Traditional IRA Calculator to see which IRA might be better for your situation and to compare estimated future values.
- Consider a deferred variable annuity.
- Open an IRA online and set up automatic transfers from your bank account. You can get started with a Schwab IRA for as little as $100 a month.
Consider these ideas to maximize your retirement income and investments.
- Postpone retirement by a few years to build up a bigger retirement portfolio and shorten the time you’ll need to sustain retirement spending.
- Increase your potential Social Security benefits by delaying the age you begin receiving payments (up to age 70).
- Consider moving to a smaller or less expensive home, or to an area with a lower cost of living.
- Work part-time to generate additional income.
- Save money by paying off variable, high-interest debt if possible. Consider lower-cost and potentially tax-deductible forms of debt such as a home equity line of credit (HELOC).
1. Source: "Is the 4% Rule Still Appropriate?" by Rob Williams, August 5, 2014
2. The consultation is available only to clients with at least $25,000 in assets at Schwab or prospects with at least $25,000 in assets available to bring to Schwab. Individualized recommendations are available only to Schwab clients and are limited to assets held in a Schwab retail brokerage account. Information provided to prospects, or pertaining to assets held outside of Schwab, as part of the consultation are examples of the kinds of recommendations available on assets held at Schwab; these examples do not constitute recommendations, solicitations, or investment advice.
Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.
Withdrawals from an IRA or qualified retirement plan prior to age 59½ may be subject to a 10% federal tax penalty on earnings.
The information provided is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager.