40 – Is it Too Late to Invest for Retirement?

One of the questions received in our contest was the following:

I am turning 40 and I don’t have any investments, is it too late to invest for retirement?

But before we try to solve the problem, we need to make sure that you don’t suffer from the symptoms. If you don’t have invested yet and you are 40, there must be a reason such as:

-         Too many expenses in your 30s (kids, mortgage, wife, etc.)

-         An illness

-         A bankruptcy

-         A divorce

-         You just didn’t care and prefer to spend all your money

So if you still have one of these reasons, you will need to solve this problem before asking yourself if it’s too late to start investing at 40. But if you have taken control over your personal finances and are ready to make some progress, keep reading.

40 and no investments? Here is some good news

Normally, you would retire at 60 or 65 (especially since you haven’t started to invest yet, the age of 65 for retirement makes more sense). This means that you have another 25 years to benefit from the power of compound interest.

The second good omen is that you should have a higher income than during your first days as a worker. You should have time to get your career in the right direction and figure what you want to do in life.

Additional good news is that you should have less expenses at 40. Your personal finances should be more established and you should be in control of your budget. This is good news since the retirement clock is now ticking…

How Much Do You Need To Plan Your Retirement When You Are 40?

This is a good question! The answer will go with how much do you want to spend in retirement? This is why I will present 2 scenarios.

Retirement scenario #1: Making $23,580 per year

If you are willing to live frugally, you might not put much money aside even if you are 40 and you haven’t started your retirement plan yet. The calculations I have made are based on the following premise:

-         You are investing on a monthly basis

-         You generate a 5% investment yield

-         You retire at the age of 65

-         You make monthly withdrawals

-         You withdraw money for 20 years (until the age of 85)

So if you are willing to live with $23,580 per year, you will need to invest $500 per month (so $6000 per year) from the age of 40. At the age of 65, you will have almost $300,000 invested which will allow you to withdraw the sum of $1,965 per month.

Retirement scenario #2: Making $47,161 per year

Based on the same premise, you could make $47K per year by increasing your monthly investment amount to $1000 per month. This will result in a nice nest egg of $595K at the age of 65.

I don’t have $1000 per month to invest, what are my other options to increase my retirement income?

$1,000 is a lot of money even if you are 40 and earn more than a college student. In the 2 scenarios I have mentioned, I have used a 5% yield assumption. This takes into consideration a real yield (after inflation). Can you make more than 5%? Probably. But this requires that you take more risk.

By switching over a more aggressive portfolio, you may be able to get a 6% yield. If you take the same scenario of $500 per month with an increased yield, this will increase your retirement fund to $346K. According to the same premise, you will be able to withdraw $29,788 per year.

Another solution would be to retire at a later age. If you wait until the age of 68 instead of 65, you will grow your retirement fund to $434K (with a 6% yield and $500/month) and grow your “retirement pension” to almost $41K per year (since you will be withdrawing money during 17 years instead of 20).

Final thoughts on being 40 without a retirement plan

As you can see, you still have several options if you are 40 and you haven’t started to invest yet. By adjusting your asset allocation and investment time horizon, you can still manage to have a nice and comfortable retirement.

author: TFB

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13 Responses to 40 – Is it Too Late to Invest for Retirement?

  1. Unfortunately many of my friends (we are all in our late 20s or early 30s) are more focus on saving for a home or a vacation to think about saving for retirement. Good to know that in 5-10 years from now when they wake up to relize they have no money to retire on that it won’t necessarily be too late. That being said, I’d rather be the ant than the grasshopper.

  2. *focused *realize

  3. Hey Christy,

    I think you are making the right choice. While everything is still possible, I’ll show you how you can become millionaire if you start thinking about retirement at the age of 25-30 instead of 40. Thx to the magic of compound interest!

  4. Thanks for this article. Its timely for me. I’m nearing 40 and have been a stay at home parent for the past 10 years. I’m about to re-enter the workforce and wondered how much catch-up I would need to do. Its not quite as dire in my case as my husband has been putting away retirement money but the more the better.

  5. @Michelle,

    I’m glad I have helped. If you have any questions regarding a specific aspect of your retirement planning, I would be glad to help!



  6. Nice to know but how to get the 5-6% gurantee for return for retirement without taking a lot of risk??
    Now days you get 2% so don’t you need to save more ?
    Lots of people don’t like any risk and having a low income like myself is tough to save for retirement.But there is always hope even at 40!

  7. @ Joe,

    Good point. If you don’t want to take any risk, you will have to calculate your investment return expectation at 3% instead of 5 to 6%. You have 3 factors you can play with:`
    - investing yield (related to risk in your portfolio)
    - amount invested (related to your budget)
    - investment horizon (related to your age vs age at retirement).

    If you start at 40, you are late. Therefore you have 2 options:
    - invest more money per month
    - take more risk
    … or retire at 70!

    if you invest in a balanced portfolio (50% equity, 50% fixed income) you should get a 5% yield over time. But you portfolio value will show negative return from time to time.

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  11. What do you do if your 52 years old with the same problem?

  12. @Dave,

    the principle will be the same:
    #1 save a lot more
    #2 retire older
    #3 live on a smaller income
    #4 work part time instead of fully retire at 65

    I’m currently working on calculators so you can play around with your numbers

  13. Being 40 removes some of your most precious retirement planning asset (time). But as you said, it is definitely not too late! I’m glad that you showed that adjusting your expected rate of return, amount invested, or age of retirement will help you combat that loss.

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