How to Plan for Retirement When You Start at 40

Learn how to build a solid retirement plan starting at 40 with realistic savings rates and smart catch-up strategies.

  1. Calculate your retirement income target. Estimate you'll need 70-90% of your current annual income in retirement. If you earn $75,000 now, plan for $52,500-67,500 per year starting at 65. Multiply this by 25 to get your total savings target — this covers 4% annual withdrawal rates that historically sustain 30+ year retirements.
  2. Max out employer 401(k) matching first. Contribute enough to your workplace 401(k) to get the full company match — this is guaranteed 100% returns. Then increase your total retirement savings to 15-20% of gross income. At 40, you can't rely on compound interest doing most of the work, so higher savings rates matter more.
  3. Use catch-up contributions starting at 50. At 50, you can contribute an extra $7,500 to 401(k)s and $1,000 to IRAs beyond standard limits. This means $30,500 total in 401(k)s and $8,000 in IRAs as of 2026. Plan to ramp up savings in your 50s when many people have peak earnings and fewer family expenses.
  4. Choose low-cost broad market index funds. Build portfolios with 70-80% stock index funds and 20-30% bond index funds in your 40s. Look for expense ratios under 0.20% — high fees compound against you over 25 years. Target date funds automatically adjust this mix as you age, shifting gradually toward more conservative investments.
  5. Open an IRA if you need more space. If you max out 401(k) matching and still haven't hit 15-20% savings, open a Roth IRA for after-tax contributions. Choose traditional IRA if you're in higher tax brackets now than you expect in retirement. IRAs typically offer more investment choices than workplace plans.
  6. Automate increases and stay consistent. Set up automatic contribution increases of 1-2% each year or whenever you get raises. Missing even 2-3 years of contributions in your 40s significantly impacts your final balance. Consistency beats perfect timing — keep contributing through market ups and downs.