4 Smart Financial Goals for 40-Year-Olds

In your 40s, you can reflect on how you’ve done so far and make sure your future is secure.

Key points

• Retirement planning takes precedence for 40-year-olds, as you need to make sure you’ll have enough to live comfortably when you stop working.
• Saving three times your yearly salary and paying off non-mortgage debt are both good targets for this decade.
• If you have a family, check that you have the right insurance coverage.

Reaching your 40s is often a pivotal point financially. It’s close to the middle of your career, as you’re about halfway between early adulthood and retirement age. If things are going well, you’ll want to keep that momentum going. And if you’re not quite where you want to be, now is the time to make changes.

This is the decade of your life where it’s more important than ever to have good financial goals. Here are four that will help you navigate your 40s.

1. Make sure you’re on track for retirement

Retirement should be your No. 1 personal finance consideration at this age. If you have enough in your retirement accounts, you’ll be able to stop working when you want without worrying about running out of money. But it’s much harder to build your retirement fund if you wait too long.

The first thing to do is figure out how much money you need to retire. A popular rule of thumb is to multiply your expected annual expenses by 25. For example, if you think you’ll need $60,000 per year in retirement, you should have $1.5 million in retirement savings.

Next, review your current retirement accounts and monthly contributions. You can plug these into a compound interest calculator, along with an estimated annual return, to see how much your money will grow over time.

If you’re on track to retire at the age you want, keep doing what you’re doing. If not, look for ways to increase your retirement contributions to make up the gap.

2. Save three times your yearly salary

Conventional wisdom says you should have three times your yearly salary saved at 40 years old. For example, if you earn $70,000 per year, then it’s recommended you have $210,000 saved.

You can include money from all your financial accounts for this. You don’t need to reach this mark with only the money in your savings accounts, and in fact, it’s probably better not to have so much in your savings accounts. Money in retirement accounts and brokerage accounts also qualifies.

Saving this much money is typically a sign you’re in a good financial position, with enough for emergencies and to retire on schedule. However, plenty of people haven’t saved this much, so don’t feel discouraged if you aren’t there yet. If necessary, try to increase your savings rate so you can reach this target during your 40s.

3. Pay off all non-mortgage debt

Debt isn’t always a bad thing, but it is generally better to cut down on your debts as you get older. You’ll save on interest charges and have fewer monthly payments to manage. Getting rid of monthly debt payments also frees up more money to use for other financial goals.

In most cases, it makes sense to pay off debts with higher interest rates first. For many consumers, this means starting with paying off credit card debt, since credit cards tend to have hefty APRs. Next up will likely be personal loans, if you have any, and then you can focus on auto loan debt.

The one exception here is mortgage debt. Since mortgages tend to have low interest rates, there’s nothing wrong with paying yours off over time on a normal payment schedule. Or, if you want, you can pay extra and get it paid off more quickly. It is a good idea to have your home paid off by the time you retire so you have lower expenses in retirement.

4. Secure your family’s financial future

Family is another important consideration for 40-year-olds who are doing financial planning. If you have a spouse and children, you’ll want to ensure they’re taken care of, no matter what.

One of the best ways to do this is by making sure you have the insurance coverage you need. Home, health, and auto insurance usually aren’t enough for people with families. Here are some other types of insurance to consider:

• Life insurance to support your family if anything happens to you
• Long-term disability insurance (also available as a life insurance rider) that provides coverage if you become disabled and are unable to work
• Long-term care insurance so that your loved ones aren’t financially strained if you require this type of care

If you’re a parent, you may also want to look into ways you can save money for your children. Lots of parents set up college funds, like a 529 plan, and there are even some who start retirement funds for their children to give them a head start.

The main focus for 40-year-olds is getting ready to retire when they want. That means reviewing your retirement plan, having plenty of money saved, and cutting down on debt. And if you’ve started a family, it’s also important to make sure they’re taken care of and you’ve prepared for any worst-case scenarios.