Saving money for your future is not a simple task. If you've managed to accumulate a sizable amount, it can be spent quickly for an emergency or to buy a large asset. By the time you and your spouse are 40 years old, you may need money in your savings so you can retire at a reasonable age.
The amount you need to save by age 40 depends on how much money you require when you retire and how much interest you make. It's common to calculate a percentage of your current income, such as 75 or 80 percent, that you must make in your retirement years. If you and your spouse need $1 million by the time you are in your mid-60s, and you have no savings at 40, you must save about $10,000 per year in an account or investment earning 9 or 10 percent return. If you have 20 years before retirement age, and you've saved $75,000, you need to continue to save about $5,000 a year in an account that earns 5 to 6 percent interest, recommends the website Bankrate.
Retirement Income Sources
The money you save by age 40 can be diversified. For example, choose savings, certificates of deposit, individual retirement accounts or a combination. Derive income from investments such as stocks, bonds or real estate. In addition, your company may have its own retirement plan. If you qualify for Social Security benefits, your savings need only make up the difference between your government payments and the amount you require annually.
If you haven't saved money by the time you are 40, and you won't be able to put away at least $10,000 a year, employ strategies to lower your cost of living so you won't need as much money after you retire. Pay off your credit card bills and any short-term loans. Place as much money as your employer allows in retirement accounts where your company matches your contribution. Don't withdraw any of the money you are saving for retirement. At 40, you will have to save more per year to make up for the amount you use.
Save about 10 percent of your annual salary each year, starting in your early 20s. Use a retirement calculator to keep on course for saving enough money. When you are 40, make sure the money you've accumulated and the investments you have will pay off at retirement age. Adjust your calculations and make a plan to save the amount you will need.
- Bankrate.com: Retirement Savings Tips for 40-Somethings
- Money-zine: Retirement Planning in Your 40s
- FPA Journal: National Savings Rate Guidelines for Individuals
- University of Florida: Retirement Years: How Much Money Will I Need?
- MSN Money: Money in Your 40s -- It's Make or Break
- U.S. Department of Labor: Top 10 Ways to Prepare for Retirement
Carol Deeb has been an editor and writer since 1988. Her work has appeared in magazines, newspapers and online publications, as well as a book on education. Deeb is a real-estate investor and business owner with professional experience in human resources. She holds a Bachelor of Arts in English from San Diego State University.