retirement

How to Build Your Wealth in Your 40s

Retirement is still years away, but it's closer than you think. This is the decade to get your financial ducks in a row.

When you enter your 40s, you may start feeling like you have less time to prepare for retirement and find your financial footing. This added stress can make financial planning challenging during this stage of your life.

Your 40s are a time to get focused and take strategic steps toward wealth-building that will positively impact your retirement and your ability to leave a legacy in the future. There are a few key steps you can take to build your wealth more quickly during this critical season of life.

Get Out of Debt

If you haven’t prioritized debt repayment in the past, now is the time to do so. Start by focusing on your consumer debt. This includes:

  • Auto loans
  • Personal loans
  • Credit cards

From there, you can look to knock out any remaining student loans you have, and pay your mortgage off early if possible. Paying off your debt now, including “good” debt like a mortgage, frees you up to put more toward retirement savings as your retirement timeline gets shorter.

Going into retirement debt-free is an excellent way to extend the life of your savings and make space in your budget to accomplish “bucket list” goals, like travel or helping to fund your future grandchildren’s college education.

Diversify Your Income

In your 20s and 30s, you were so focused on growing your career that the idea of having multiple streams of income may have seemed out of reach. Now that you’re in your 40s, you ideally have a steadier job or career with room for continued financial and professional growth.

However, without having to hustle as you did at the beginning of your career, you now have the flexibility to expand your ability to generate personal revenue. You may not have time in your 40s to create a side hustle that brings in extra money for you and your family, but finding ways to create passive income streams can help you to grow your savings and increase cash flow.

Passive income streams focus on creating additional revenue for you and your family without a large amount of additional work added to your day-to-day routine. Depending on your unique financial goals, this could be:

  • A rental property
  • Investing beyond your company 401(k)
  • Monetizing a hobby
  • Creating courses to sell online

These are just a few ideas to get you started, but the sky is truly the limit when it comes to passive income.

Focus on Retirement Savings

Have you been saving for retirement on autopilot? When retirement still feels like a lifetime away, it can be difficult to save for this milestone with any excitement or focus. Now, however, you have less time before you take the leap and it’s important to start saving more aggressively.

Start by looking at a retirement calculator to determine what the gap is between your current savings and how much you’ll need to retire comfortably. Once you have a better idea of where you stand, you can reverse engineer a savings plan that moves you toward your goals.

If your income and budget allow for it, try to max out contributions to your workplace 401(k) or IRA each year. If this isn’t a possibility, aim to contribute enough to get your employer match in your 401(k), and steadily increase contributions each year as you pay off debt, reach savings goals and grow your salary. A standard rule of thumb is to contribute 15% or more of your pre-tax income toward your retirement savings.

Do you find contributing to your retirement savings account challenging? Automate contributions whenever possible. Taking the human element out of saving can help you to grow your nest egg without any extra effort on your part.

Adjust Your Portfolio

With your retirement timeline shortening, it’s important to adjust your portfolio accordingly. This may mean looking at the asset allocation in your workplace retirement account, like a 401(k) or Individual Retirement Account (IRA). As you get closer to retirement, you’ll want to reduce the risk you’re taking on in your portfolio. This might mean selecting different funds in your retirement accounts that are more in line with your goals.

You should also look at diversifying the location of your assets, not just how they’re allocated. Asset allocation focuses on the types of investments your portfolio holds. Asset location is more about the types of accounts that comprise your portfolio, and how each is taxed.

When you enter retirement, you want a combination of taxable accounts and non-taxable accounts. This gives you the opportunity to create a flexible income in retirement, and the ability to do more strategic tax planning.

Disclosure: Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss.

About the Author

Chad Chubb, CFP®

Founder, WealthKeel LLC

Chad Chubb is a Certified Financial Planner™, Certified Student Loan Professional™ and the founder of WealthKeel LLC. He works alongside Gen X & Gen Y physicians to help them navigate the complexities of everyday life by crafting streamlined financial plans that are agile for his clients' evolving needs. He helps them utilize their wealth to free up time and energy to focus on their family, their practice and what they love most.

Most Popular

How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!
estate planning

How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!

Upstream basis planning is a trust strategy that can save wealthy people on their capital gains taxes and income taxes associated with highly apprecia…
July 3, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 15 Best Growth Stocks for the Rest of 2022
growth stocks

The 15 Best Growth Stocks for the Rest of 2022

A sharp selloff in growth stocks this year creates opportunity for keen investors. Here are 15 top-rated picks to consider in the second half of 2022.
June 28, 2022

Recommended

How 13 Types of Retirement Income Get Taxed
retirement

How 13 Types of Retirement Income Get Taxed

When you're planning for retirement, it's fun to contemplate all the travel and rounds of golf ahead of you, but don't forget about taxes.
June 30, 2022
In What Order Should You Tap Your Retirement Funds?
retirement planning

In What Order Should You Tap Your Retirement Funds?

Should you go with your IRA first or your brokerage account? Pulling money haphazardly can have negative implications. Instead follow this road map fo…
June 28, 2022
An Easy Way to Find How Much You Will Spend in Retirement
retirement planning

An Easy Way to Find How Much You Will Spend in Retirement

One simple math equation can help you determine where to start building your retirement income plan, and whether your money should last.
June 27, 2022
Retirement Comfort: How to Avoid Running Out of Money
retirement planning

Retirement Comfort: How to Avoid Running Out of Money

When it comes to retirement planning, one thing all of us worry about is whether we will have enough money to last. Financial professionals can help y…
June 25, 2022