Money and insurance

Calculate your retirement savings at 40: Where are you in your investment plan?

In your 40s and have no retirement savings to show for? Better hustle! Here are some tips on building that retirement and investment plan so you can catch up.

By Jeanne Jampac

Experts suggest that the ideal retirement savings you should have by the time you’re 40 is twice the annual salary you get. While that does not sound implausible, some people will still have zero investment plans by that age.

Having nothing for retirement at a time that you should have been fully established financially is not ideal, but it is not entirely hopeless either. This just means you have to come up with a plan to catch up and retire comfortably.

Here are some tips on how to start building your retirement savings at 40.

1. Create a retirement plan.

First, crunch some numbers and plan your retirement savings and investment strategy. This includes deciding what age you want to retire, your life expectancy, the lifestyle you want to lead in retirement, and your current savings. Remember not to do this step, in haste, as it will serve as the foundation of your retirement plan.

65 years old is the compulsory retirement age in the Philippines, but you can opt to retire early. Assuming you have not saved for a retirement plan at 40, just remember that the sooner you wish to retire, the higher your financial target will be.

2. Assess your spending habit and priorities.

Closing the gap between your current savings at 40 and retirement goals is going to be a challenge. That means spending unnecessarily is not an option for you. In fact, living frugally may be the only way to meet your goals. So here’s your task: Identify which expenses are needs and which ones are wants. Clearly, you have to let go of the wants—for the meantime—so you can re-allot these expenses to your retirement savings.

But be realistic about cutting down expenses. That is, you do not have to totally eliminate the things you actually enjoy spending for but maybe you can find cheaper alternatives? Example, you can brew your morning coffee instead of buying it from your favorite coffee shop. That way you can save money without depriving you of the things that make you happy.

3. Look for other sources of income.

Cutting down your expenses can go a long way, but it may not be enough if we are talking about catching up with your retirement plan at 40. Instead of simply having savings, you might need to actually earn more income. Fortunately, you still have a couple of options at 40. One is to seek for a promotion at work, which pays higher and the other is to look for another source of income such as a part-time job or a business venture.

4. Make and strengthen investments

Assuming you plan to retire at 65, you’ll only have 25 years to strengthen your investments. This means you’ll have to invest aggressively while keeping things balanced. That is, you have to mix high-risk investments with safer ones such as bonds and certificates of deposit.

Likewise, you have to add as much extra money as possible to your retirement savings to make it grow more quickly. If any of your other investments pay dividends, reinvest this extra fund or add it to your retirement plan.

5. Get protection via insurance plans

Make sure that the retirement savings you’re building won’t be compromised by unexpected events like getting sick or having an accident. Protect yourself from future costs with critical illness or accident insurance plans. Having these plans give you the peace of mind you need to forge on and build your investments even while you’re 40.

It is never too early to think about your retirement. Plan ahead so you can enjoy the fruits of your labor. Meet Cali, FWD’s fast and easy retirement calculator developed for all ages. Try it now and book a free session with FWD financial advisor.

This article is part of a comprehensive series titled “Retirement Planning 101: A 5-Step Guide to Securing Your Future”. The series aims to provide you with valuable insights and practical steps to plan your retirement effectively.