14 Powerful Retirement Moves 40-Year-Olds Should Make Today

There are pain-free ways to stop hitting “snooze” on your retirement planning.
Updated May 13, 2024
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You spent your 20s enjoying life and then your 30s clinging to your 20s or lamenting your wilted youth. Amid launching a career, finding a soulmate, and buying your first home, saving for retirement wasn't a high priority.

Time to pay the piper. If you’re smart, you’ve been maxing out your 401(k) retirement plan since day one.

But even if you haven’t set a single cent aside, you can build wealth after 40. Here are 14 powerful moves you can put in place today.

Eliminate your late tax debt

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Contribute to your employer’s 401(k) or other retirement plan

Tada Images/Adobe 401(K) Plans on IRS mobile website

Most workplaces sponsor a 401(k) or other similar retirement savings plan. Make sure to sign up and contribute as much as possible. Put in at least enough to get the full employer match, if there is one. Otherwise, you’re just throwing away free money.

Get a financial planner

mavoimages/Adobe african american couple consulting finance planner

Planners sometimes get a bad rap. No, a financial planner won’t tell you you’re poor or scold you for not sticking to a budget.

A financial planner is someone in your corner to help you manage your money, no matter how much you have. They work with consumers of all stripes — any credit score, at any income level, and at any life stage.

They will guide you with investments, taxes, estate planning, and other financial advice. You can find a financial planner by using the search tool on the Certified Financial Planners website.

Get disability insurance

Olivier Le Moal/Adobe disability insurance

Many think “disability” means a permanent, catastrophic condition, like becoming paralyzed. But disability just refers to an illness or condition that prevents you from being able to work, such as car accidents, planned surgery, or childbirth.

And while only 1% to 2% of American workers think they’ll have a disability, there’s an 80% chance of becoming disabled at some point during your working years.

Although Social Security offers some disability coverage, it’s extremely hard to qualify — 67% of all claims are denied — and the maximum payout is $3,822 a month.

Purchasing private disability insurance offers better coverage, with payouts of up to $20,000 per month, and it’s easier to qualify. Some plans even offer coverage if you stop working to care for a disabled family member.

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Get life insurance

Rawpixel.com/Adobe insurance health risk assessment

A whole life insurance policy isn’t just to leave your spouse a million bucks if you get hit by a bus — although that might be a compelling reason in and of itself. It may be a good long-term investment.

Unlike term life insurance, whole life insurance premiums are invested and, over time, will accrue a “cash value” that you can borrow from to supplement your retirement income.

You can use these insurance funds while you’re alive, and what’s left over will go to your next of kin when you die.

Figure out your home’s value

Smallroombigdream/Adobe real estate investment concept

It’s wise to know how much equity you have in your home if you’re planning to sell or take out a reverse mortgage when you’re over 65.

While you need your big home in your prime working and child-rearing years, you may want to downsize when you retire or are close to retiring.

When a home has been your primary residence for at least two of the five years before you sell it, you can exclude up to $250,000 ($500,000 for a married couple filing jointly) in capital gains on the sale of your home. That’s a tremendous tax savings.

Max out retirement contributions

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Contributing the maximum allowed is the best way to save for retirement. However, financial guru David Ramsey recommends maxing out your 401(k) or other retirement vehicles only if you’re debt-free, a high-income earner, and have a healthy emergency fund.

The maximum is $23,000 for 2024. Workers aged 50 and older can contribute an additional $7,000 in catch-up contributions.

Start funding an HSA

Vitalii Vodolazskyi/Adobe health savings account (HSA)

Funding a Health Savings Account (HSA) is a smart move to cover short-term and long-term medical expenses. According to Fidelity, the average couple will need $315,000 to cover out-of-pocket health care expenses during retirement.

Beyond covering medical costs, an HSA offers many advantages over other savings vehicles. HSAs have more favorable tax treatment, with funds growing tax-free in a tax-deferred account. 

Some think of an HSA as a 401(k) plan for medical expenses, but an HSA also offers more versatility in planning.  

After age 65, you can use the funds — without penalty — for non-medical purposes. Leftover funds can be passed on to your spouse or your estate.

Invest in dividend stocks

hafakot/Adobe Dividend-Paying Stocks concept

Consider investing in stocks that pay consistently high quarterly dividends. While you’re still working, you may want to reinvest the dividends to grow your holdings in that company.

But when you get to retirement, those quarterly dividends can add some cash-flow to your income. Be sure to research solid companies with a history of dividend payments before you invest.

Prioritize your retirement over your children’s college

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You probably want your kids to go to college, but you don’t want to spend your retirement worrying about money.

It’s a balancing act. A financial planner can help you find affordable ways to help your kids without jeopardizing your own retirement. For starters, you can open a 529 Plan for each child that you, the grandparents, or anyone can contribute to.

Your kids can play an active role, too. They can

  • Take AP courses in high school and find colleges accepting AP exam credits.
  • Attend a local state school and live at home.
  • Take advantage of postsecondary enrollment options in which high school students in some states can earn college credits.
  • Attend community college for the first two years while working part-time.
  • Take a gap year between high school and college to work and save money.

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Don’t withdraw from retirement savings early

Vitalii Vodolazskyi/Adobe early withdrawal penalty letter

Do not dip into 401(k) funds before age 59 1/2 if you can avoid it. According to Merrill Lynch, an early withdrawal could wind up costing you 34% in total taxes and early-withdrawal penalties.

In addition to these penalties, selling investments in retirement accounts can reduce the potential for growth over time, which is key to retirement investing.

Find out your anticipated Social Security benefits

simona/Adobe woman surfing the web

By the time you’re in your 40s, you should have created a mySocial Security account on the Social Security website. (You can open your account as early as age 18.)

Once you have your account, you can calculate your anticipated Social Security benefits, depending on your age when you decide to take them. According to the SSA, benefits can replace about 40% of your pre-retirement income on average.

When you know how much you can expect to receive at different ages, you can begin to plan your ideal retirement date.

Avoid ‌lifestyle creep

luckybusiness/Adobe luxury couple on the boat enjoy on summer holiday

In your 40s, you’re probably making more money than you were in your 20s and 30s. On average, workers ages 45 to 54 earn 25% more than workers ages 25 to 34.

Avoid the lifestyle creep that comes with higher earnings. Don’t upscale your housing, cars, or spending just because you “can.”

Invest in yourself

micromonkey/Adobe male mature student studying in classroom with books

Taking courses, obtaining certifications, and keeping current with advances in your field are great ways to stay employed and fight ageism in the workplace. This protects your employability and ability to keep saving for your retirement.

Get a side hustle

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Side hustles aren’t only for teens and strapped-for-cash adults. They're great at any age or income level. 

A side hustle could help you retire earlier and may provide a source of income even after you’ve retired.

Bottom line

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Retirement seems like something you can think about when life calms down. But it must become a part of your life now if you want to retire stress-free.

Talk to your human resources department to be sure you are taking advantage of every retirement savings opportunity, especially an HSA. 

If you want help, find a fee-only financial advisor to help you organize your investment plan. Talk to your family about what life after work might be like. In 25 years, you’ll be glad you made a plan in your 40s.

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Author Details

Stacy Garrels Stacy enjoys writing about fintech, consumer deals, the side hustle economy, and random tomfoolery. She's personally tried more than 100 different gigs, including being an Uber driver for one afternoon.

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