6 proven steps to start saving for retirement at 40 and still retire as a millionaire

Updated: Apr 30, 2019

Let’s start by stating the problem: You are at, past, or near 40 and you don’t think you have enough saved for retirement. This could mean you don’t have anything, or it could mean you changed your outlook on the future and you simply feel like you might be short. Either way there are some steps that you need to take before you can figure out what you need to do.

At 40, past 40, or near 40 and don’t think you have enough saved for retirement.

Step 1. Face this head on!

You have likely already gone through the emotions that come with realizing things are not going to plan. This like many trying times is a time to have faith and confidence in yourself and believe that it is not too late. Please understand that you are not alone, almost half the respondents of a recent report by the Federal Reserve, on the Economic Well-Being of U.S. Households said they had no financial plan for retirement, and multiple U.S. News reports that about 36 percent of American workers have less than $1,000 saved for their post-work years.

Every retirement looks different!

The reason is because there are so many different tools available for people working in different industries, cities, states, or who are involved in organizations. What I go over today should be fairly the same for everyone but remember to review your individual circumstances carefully as you make your plans. If you have a membership to some cost saving organizations that help with prescription payments or Church groups with special programs for senior citizens, there are things you might have available you that others don’t. I encourage you to take advantage of what you can.

This is going to get scary for some of you, but don’t shy away, and don’t feel guilty, or any other distracting emotions that stop you from taking action. When you have finished this article, I would expect you to at least be thinking about the following:

A. Your Numbers for retirement

B. The lifestyle impact retirement planning will have for you and those close to you.

C. Potential side earnings and windfalls

D. Optimizing your retirement plan with a diverse range of investments

E. How often you plan to stress test your plan.

Step 2. Find Your Numbers for Retirement

The first thing you will want to do is to identify what you think your retirement will look like in terms of money needed. There are different ways to go about getting this number as some people may be thinking of this a s a lump sum target such as, “I need to have a million in the bank”. Others however may think of this number in terms of how much they will need each month for expenses and other costs. This number to them may articulated as “I need about $3, 000 a month” in order to retire without financial worries. Both have their merits depending on how you need to calculate your payouts, But I have always favored the monthly income model. It makes the process of thinking through the numbers a bit more manageable for me.

To start this, first determine the age you expect to retire. This tells you how long you must invest before you start to withdraw.

A lot of financial advisors will ask you how long do you think you will need to rely on your savings? As if you somehow know your only going to live X number of years after retirement. That is too hard to plan for and doesn’t really leave you a lot in reserves if you’re not careful.

My answer to that question is “Until I die … and my kids/ family/ friends better have enough left over in my accounts to pay for my sendoff and the party to celebrate my life without paying a dime out of pocket”. All the big talk said… I like to estimate around forty years, I truly don’t expect to live past 105 but if I do I also hope there is a little gas left in the tank at the end of my trip to pass on.

So where does that leave you? Start with an estimate of what you think your monthly expenses will be, then estimate that every year you will need a more going towards healthcare than the year before. This is your starting point, now you need to see what steps you would need to take in order to hit those numbers. This number will get more outrageous the more years you tack on, but it should also engrave in you the urgency of starting the process. Don’t be deterred! If you need help with this I recommend using any number of free online retirement calculators out there.

Don’t get stuck on this, if the medical stuff feels too hard to calculate just get a general number in your head for what you will need. I would suggest using something between $2500 - $5000 a month if you currently make less than 100K a year as a household, this should be enough to illustrate what you are looking for.

Never truly stop the growth of your retirement savings.

The most important thing

One of the key points that you should look for is the point at which the amount of money you withdraw each year is less than the amount of money you earn in interest. This means that you never truly stop the growth of your retirement savings. You merely slow the progression. If you need a super quick way to do this I recommend using a basic excel template for retirement planning.

Hitting your number by retirement is still doable!

Focus on making sure you can live on less than what you will earn in interest for a little while. It is best to project modest growth that way you are prepared in the event of big market swings.

Free excel retirement planner template example: Live off less than what you make in interest to stretch your savings

Here are a few takeaways I want you to keep in mind:

$12,000 a year can theoretically help you reach a cool million in 25 years provided you get at least 6.5% return on investment each year. This coincidentally is about the same amount you can put into 2 IRA accounts (one for you and one for your spouse or partner) on a yearly basis and slightly less than what you can put into a 401K. IRA accounts have 5500 maxes when you’re under 50. 401Ks have a $19K limit starting in 2019. The more you can pack away the better.

Your retirement plan should also include any Social security, disability, veteran benefits, etc.

Don’t rely on the entitlement programs (politics in the future could lead to unexpected changes in these programs) but factor them in as they can help.

Now that you have the numbers its time to start figuring out how your going to hit those numbers.

$12K a year is no small sum and if your planning to go bigger, you will need a plan. Let’s start by finding the money you will need to contribute to your plan. This means first analyzing whether you want to contribute pre-tax or after-tax. Then it means making some adjustments to both your spending and budgeting. I am all about the free stuff so when I recommend using Mint online to help track your all your accounts and help you make a budget if you don’t already have one. Cutting out the stuff you don’t need now can help you save towards what you will need later. Don't be too harsh, since eliminating everything you enjoy is unsustainable, but be as ruthless as possible. You might not quit going out to eat cold turkey, but maybe you can stay at home a few more times a week instead of hitting the drive-through every evening.

Be real with yourself

It helps to sometimes force yourself to categorize your expenses into two brutally honest factors. NEEDS and WANTS. Needs are essentials like food, housing and utilities. Wants are less necessary expenditures like clothing, travel or entertainment — and they're your first target for cuts. Cut spending from your "wants" category by identifying and cutting out the most unnecessary expenditures. These will be different for everyone so take this step carefully as you have to make sure you can live with the changes.

Next, target your "needs" to see what can be trimmed out. Go through your expenses bill-by-bill to find savings on everything from your cellphone bill to your utilities. Consider other small changes, too, as those can add up to a big difference. Can you mow the lawn in exchange for paying less rent? What about choosing lower-cost meals? Have you checked your home assessment for a chance to lower your property taxes?


If you're ready for a big change, consider downsizing your home. Buying a cheaper residence frees up more of your money and often decreases your bills. This is not easy but often very time-freeing as you realize that a cheaper condo/ apartment comes with less stuff you need to spend money on and take care of. You won’t need to waste time on lawn care, perform regular maintenance, and pay as much in property taxes (depending on where you move). The benefit of downsizing is that you can make a few extra bucks selling off old stuff that won’t fit in the smaller place, or you can donate it for a tax write-off. Stop for a moment and think about that. If you weren’t paying for all the little things that come with a house how much would that save you? If you want to keep the house, can you find ways to make it less expensive, such as house hacking?

Reschedule those vacations and reconsider the new car

While you might not have banked any money toward retirement, you might have been planning for a vacation or a new car. Earmark that money to your retirement instead. This means diverting money from your saving account to your retirement savings. This is usually a much better return anyway, so it isn’t much of a sacrifice.

Give’em the boot

If you're still supporting your adult children, it's time to tell them they're on their own. It sounds harsh, but as the laws of time and nature tell us, they have many more years for their own financial planning, and every bird must leave the nest.

Calculate your total savings from these changes and that is added to your contributions. Step 2 is now completed

Step Three: Discover New Opportunities to Earn

Even with all these changes you still might find you have a gap between what you need to save and what you save. Cutting spending can help you find some extra money to put toward retirement, but there's only so much room in most budgets. Once you've cut what's reasonable from your expenses, it's time to focus on making more money. Start with your day job. Ask for a raise at work or apply for a better-paying job (or one with better benefits, like 401(k) matching).

If you cant get a raise, your next step is to look for a side hustle.

This doesn’t have to be an immediate start. Whether you plan to rent a room or suite in your house, or start a side business, this can be done before or during retirement. For some of us retirement means not working at all while for others it means working only when you want to work. That means another option is to consider working a part-time job before you retire or once you retire. Studies show that, not only does the extra income boost weak retirement accounts, but the social connections and sense of purpose can help retirees stay connected to their communities.

You might consider whether there's an opportunity to continue in your field after retirement, such as consulting at your former full-time employer or sharing your experience at a local community college. If you'd prefer to try something new in retirement, consider some strategies that might help boost your portfolio, and add cash flow such as real estate investing.

Total the amount of "extra" money you'll have each month. Tallying regular income, such as a raise or rent payments, is easier than irregular earnings, such as those from a side business. Choose a rough estimate based on your earning opportunities and adjust it as you start earning more money. Remember that your retirement may involve you picking up new and incredible skills that you didn’t have time to get before. This could open all kinds of opportunities you didn’t imagine before, however be careful not to push too much work into your retirement years. You will be older and won’t have the energy reserves you once had, plan to develop the skills you need ahead of time for whatever venture you plan to get into.

With your money working for you and your extra income streams determined its time for step 4.

Step Four: Optimize Your Retirement Contributions

Many employers match 401(k) contributions up to a certain percentage. If yours does, you'll want to take advantage of this "free" money. If your company offers a match, contribute the money from your lowered expenses and new earning opportunities to your 401(k) up to the match. Calculate how much you need to contribute each pay period to max out the match by the end of the year and set up automatic transfers from your checking account after each payday.

If your employer doesn't offer a match, you might be better off focusing on an IRA first, but don't write your 401(k) off completely as it may be best for you to be contributing to both. While investment experts can make strong arguments for both traditional and Roth IRAs, your decision comes down to whether you want to be taxed on your contributions now or later.

The general rule of thumb: If you'll be in a higher tax bracket (make more money) in retirement than you are now, you should choose a Roth IRA. If you're earning more now than you will when you retire, you should go with a traditional IRA.

Whichever IRA you choose, set up automatic transfers from your checking account. This way, you won't see the "extra" money you've saved from canceling or downgrading your bills; it'll go straight into your retirement account. Even small contributions count. Best of all you can open an IRA with as little as $10 through firms like Wealth simple and Acorns, and that money will grow over time. Check out my other articles on micro investing to see how they can help bolster savings, and even debt reduction efforts.

The power of Micro investing - https://www.traderdre.com/post/a-handful-of-nickels

Step Five: Strengthen Your Investments

Since you're just around 25 or 30 years from retirement, you won't have any desire to contribute your hard won earning into investments that as volatile the way a 20-year-old may, however you should even now try to find a decent blend of stock, option, and other investment choices. Index funds have a proven track record and are generally a solid choice. You will still want to balance these with some less volatile investments like bonds or CDs (Certificate of Deposit). They may not gain to same extent as stocks, however they'll fair better in a market downturn.

Add your windfalls (extra money)

Since you're adding to your accounts every month, help them develop more rapidly by including additional money as you can. This includes birthday gifts, Tax returns, and my personal favorite, micro investing roundups. Adding these to your retirement records to help boost your bottom line. If any of your investments pay out dividends be sure to reinvest them back in, so your cash grows quicker.

Step Six: Stress Test Your New Retirement Plan

Now that you've put a retirement plan into action, put it to the test to make sure you're on the right track. Update your estimates on the Retirement Calculators.

If you no longer have a gap between your estimated retirement expenses and income, Great job!

If not, spend a month or two tweaking your plan, then revisit the steps (Steps 2 and 3 particularly) to identify additional saving and earning opportunities. Planning for retirement isn't easy, especially if you've waited until your forties, but you can still finish strong.

Good luck, and I hope this helps!

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