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If you’re in your 40s, it’s time to put together a strategy to rescue your retirement

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Retirement often seems like a far-off destination.

But once you hit your 40s, it’s no longer the distant country you once thought it was.

On the plus side, you still have time to make some smart money moves with retirement savings.

On the minus side, saving what you’ll need may be a bit more challenging than it was when you were younger.

The reason is the power of compound interest, says Elijah Kovar, co-founder of Great Waters Financial in Minneapolis.

“You don’t need to invest a ton of money if you start in your 20s but if you wait till your 40s, you have to invest so much more to make up for what you didn’t invest in your 20s,” Kovar said.

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Here’s the difference that 10 years makes: A 25-year-old and a 35-year-old both invest $6,000 a year. Each gets an 8% return. At age 65, the 25-year-old has $1,678,686. The 35-year-old has $734,075. Try this compound interest calculator to see what your own savings rate looks like.

Since retirement is still 20 years off or more for 40-somethings, certified financial planner Mark Brown, president of Brown and Co. in Denver, tells investors in that age bracket not to be too conservative.  

“You want to over-favor equities over bonds,” he said. “You have the time to ride out the ups and downs.”

Here’s a look at some different strategies to nail down a secure retirement.

Numbers matter

The amount you save, no matter where you save it, is the most important factor in whether you’ll have enough for retirement, says Jean Chatzky, CEO and co-founder of HerMoneyMedia in New York.

Under-saving is the top issue for people who hope to retire someday.

The answer seems simple enough. “Figure out a way to get the savings rate up, and do it quickly,” Chatzy said.

Make sure your money is working for you by investing wisely. If you’re not a pro when it comes to managing your money, use a one-and-done target-date fund, Chatzky advises.

These funds automatically rebalance to an investment allocation that grows more conservative as you get closer to retirement or the target date. Otherwise you can put together your own portfolio and diversify it on your own.

But the most important thing is to save an adequate amount. “People should be saving 15% of whatever they earn,” Chatzky said. “If you do that consistently through your working life, you will generally have enough to get through.”

Keep in mind, though, that if you missed out on saving in your 20s and 30s, you may have to ramp that up to 20% — or at least try.

Ratchet up savings 

Here’s how to turn up the heat on your savings.

“The way to get there is not to go from 20% to 30%,” Chatzky said.

That could feel like too shocking a difference in what you’ve got in your wallet. Instead, nudge yourself upwards in smaller increments.

Ditch your debts

Michelle Jackson’s retirement savings journey started when she paid down more than $60,000 in debt.

Source: Michelle Jackson

Michelle Jackson, a Denver podcaster and entrepreneur, shows how you can break some rules and still feel confident about retirement prospects.

She left a university job of 10 years. She was deeply in debt — more than $60,000 — when she went into business for herself. Jackson, who is in her 40s, also hopes to help support her mother.

“Culturally, it’s a conversation a lot of African-American families have,” Jackson said. “It’s not unusual to have to help your parents with retirement.

“I want to make sure my mom has the best retirement ever.”

Studies suggest you need 70% to 80% of your annual salary to have a comfortable retirement.

Dan Herron

principal of Elemental Wealth Advisors

Jackson calls her goals aggressive: She aims to save about half her income for retirement. “It’s ironic, given where I started,” she said.

But leaving a job when she was ready for a change helped give her the energy to mow down debt and lower expenses she’d taken for granted. While working, she paid $1,200 a year for her cellphone. She now spends $400 a year.

While working, saving 50% wasn’t even a glimmer, she says. “Once you start working for yourself, you get it,” she said, all the ways you can optimize your time and get the most bang for your buck.

Jackson wants people to know it’s not too late to start saving in their 30s or 40s — even their 50s. “OK, you haven’t started,” she said. “You made the decisions with the information you had.” Ditch the regret and start saving.

Analyze this

You’ll want to know how much you need to save for retirement, says CFP and CPA Dan Herron, principal of Elemental Wealth Advisors in  San Luis Obispo, California.

“Studies suggest you need 70% to 80% of your annual salary to have a comfortable retirement,” Herron said.

Next, figure out how much you’ll need to save to provide that annual cash flow. Herron recommends using 90% to provide a cushion.

Start by calculating your total income and total expenses.

If you are in the black, Herron recommends trying to allocate a portion to increase your retirement savings rate. If you truly want to play catch-up, you are looking at at least 20% more of your salary toward savings. 

Another possibility: Readjust your expectations for retirement. You may need to consider a lower amount of money for retirement so you don’t have to save as aggressively, Herron said. 

“Look at working longer,” Herron said. “The longer you work, the more time you allow your savings to compound.”

Uncertain retirement

Alyson Duffey, 42, doesn’t think she’ll be able to retire.

“I set everything up when I started in my 20s and haven’t touched anything since,” said Alyson Duffey, 42, who works for a Boulder, Colorado, nonprofit.

An advisor came to the organization and helped employees enroll in a 403(b) plan. Duffey isn’t sure of the funds or how the money is invested. “I don’t know what’s normal,” she said.

One thing she does know: She doesn’t have much saved. “I might have $28,000 in retirement funds,” she said.

“I think the retirement system is set up for a specific segment,” Duffey said, meaning people in “the wealthier income brackets, people who are able to land certain jobs and aren’t living paycheck to paycheck.”

“It’s taken me a long time to get to this point, but I make $60,000 a year, and that is high for a nonprofit,” Duffey said. The cost of living in Boulder is lower than San Francisco, she says, but it is still quite high. 

Duffey made one move she sees as a possible boon in retirement: She purchased a condo in Boulder through an affordable home ownership program and thinks it will be suitable for her later years.

The generations

Oliver Rossi | Stone | Getty Images

For people balancing the needs of their own kids while they help their parents, it’s an issue of how to do it all.

“It’s a balancing act,” Brown said. “If you can’t increase your income, it means you’re going to work longer or live on less … or say no, either to parents or to children.”

Before adding your funds, make sure you can utilize all financial resources, Herron says, whether pensions or government assistance or savings. 

Look to other generations in the family to help out, Herron suggests. If your kids are older, perhaps they can assist, whether taking your parents to medical appointments or helping with care.

If your kids are younger and your parents are capable, perhaps they can help with school pickups and drop-offs. It could mean a great savings on childcare costs.

If you have siblings to pitch in and help care for parents, that can help ease the financial, as well as the time, burden, Herron says.

“A team effort on both ends can have tremendous positive impact not only on financial items, but family well-being as well,” he said.

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