Preparing for retirement isn't a sprint; it's a marathon. From the moment you start your first job out of school to the day you decide to hang it up, you should be taking little steps to prepare yourself for the big moment when you can retire. There are different steps and approaches to consider by the decades. For example, in your 20s, you have the luxury of putting a little less money away and be less strict with your budgeting because you have the advantage of time and compound interest. By the time you reach your 40s, however, retirement is around the corner, and it's time to focus on the next two decades of work. What steps can you take in your 40s to help prepare yourself for a comfortable retirement?
Save and Invest
According to The Balance, the average American is in their peak earning years in their 40s and typically carrying less debt. This is the decade in which you should start focusing on ways to boost your savings and perhaps even take some risks on more aggressive investment strategies. It is also recommended that people in their 40s try to pay down as much debt as possible because the decade ahead holds a big opportunity to power-up retirement savings.
If you can pay down debts in your 40s, that will free up more income once you hit your 50s. That extra money will come in handing because in your 50s you can start making catch-up contributions to retirement plans. You'll be able to add an extra $6,000 per year into 401(k) accounts and an additional $1,000 per year (up to $6,500 in total) to your IRA accounts.
Master a Skill
The Balance again notes that the average American has a median income of $67,000 by the time they reach their 40s. If you can boost your standing in the workplace by mastering an in-demand skill, it becomes easier to keep moving up the corporate ladder and earning more money in the process. However, you'll have to demonstrate that you're continuing to add to your expertise, which is why the addition of an in-demand skill is so valuable at this point in your life.
Money.com offers another reason why mastering an in-demand skill at this point in your life is so important. The pay for women tends to peak around the age of 39, while men see their pay peak around 48. If you want to ensure your income continues to grow, so you have more to set aside, an in-demand skill is your ticket to success.
Plan for Taxes
Finally, as you approach your 40s, you can begin to see retirement on the horizon. It's important to adopt investment strategies that account for the impact of taxes once you've retired. Remember, your retirement accounts might be your only source of income in retirement. At the very least, they'll be your primary source of income. Investing your money in a Roth IRA or 401(k) instead of a traditional IRA or 401(k) offers better long-term advantages.
While it's true you'll save money on your taxes each year by investing in traditional IRA or 401(k) accounts, your withdrawals from those accounts will be taxed throughout retirement as you take money out. However, it has been shown that choosing Roth accounts instead of traditional accounts in your 40s can lead to 14% more income in retirement when you remain in the same tax bracket. The reason is simple: that money was taxed in your 40s when you invested it and not during retirement when you withdraw it.
The views expressed are not necessarily the opinion of Social Advisors, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.
The views expressed are not necessarily the opinion of Social Advisors, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.
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