40 With No Savings? How to Catch Up on Retirement

Here’s something you may not have thought about when you celebrated your 40th birthday: You’re about as close to traditional retirement age as you are to your high school graduation. Feeling old yet?

If that thought stirs a bit of fear in your heart, you’re not alone. The Employee Benefits Research Institute of America reports that 14% of workers have less than $1,000 saved for retirement.¹ To make matters worse, 18% of adults ages 50 and older have no retirement savings and 61% worry about not having enough to support themselves post-retirement.² Yikes!

If you’re one of those folks (or heading that way), there should be all kinds of alarms going off in your head. This is your wake-up call!

We’re not going to beat around the bush here: You’ve got your work cut out for you if you want to become a millionaire. But don’t give up hope! Even if you’re 40 years old with nothing saved for retirement, not only is it possible to build a $1 million nest egg by the time you reach your golden years—it might not be as hard as you think to get there.

How You Can Get Back on Track With Retirement Savings

So now that you know it’s possible to reach your $1 million retirement goal, you’re probably wondering if you can afford to invest that much of your income each month to reach that goal. The real question is: 

Can you afford not to?  

Here are some tips that will help get you back in the game and on track for a million-dollar nest egg. Will it be easy? No! It’s going to take hard work. It’s going to take some sacrifices. But guess what? The peace that comes with having a nest egg that will allow you to retire with dignity is worth it every single time. 

1. Take advantage of your prime earning years.

Here’s the best news about being in your 40s: You’re smack dab in the middle of your prime earning years, which is when most workers earn their highest annual incomes. All that hard work you did in your 20s and 30s to get your career off the ground is starting to pay off—literally!

According to the U.S. Census Bureau, the median household income for those between ages 35–44 is $96,630. The only age group with a higher household income is for folks who are 45 to 54 years old ($101,500).³ So, if you’ve dug yourself into a hole when it comes to saving for retirement, you at least have a larger shovel to dig yourself out!

Let’s say you just turned 40 and realized, Oh crap! I have nothing saved for retirement! What do you do? Whether you’re 24 or 42, the Baby Steps are still the quickest right way to build wealth and become a millionaire.

2. Get debt out of your life—forever!

Trying to save for retirement while you’re juggling credit card, student loan, and car payments is like trying to climb Mount Everest with a backpack full of bricks—you’re not going to get very far!

How much will you need for retirement? Find out with this free tool!

A recent study shows that about 30% of Americans’ monthly income goes to paying off consumer debt.⁴ How in the world are you supposed to save for retirement when about one-third of your income is going to banks and lenders every month? Spoiler alert: You can’t!

Do you know what you’ll have if you don’t have any debt payments? Money! If you have debt, your top priority is to get rid of it as quickly as possible. Set retirement saving aside for now. Budget for the basics, then tackle your debt using the debt snowball method.

Once you’re out of debt except for your home and have a fully funded emergency fund (3–6 months of expenses), it’s time to put the pedal to the metal and start investing for retirement (Baby Step 4).

3. Make saving for retirement a priority in your budget.

If you don’t plan your spending each month, it’s easy to feel like you’re broke all the time. Isn’t that why you’re behind on retirement savings now? A budget allows you to set your spending priorities before the month begins, so you always know where your money’s going and how it’s working for you.

When you sit down to make a budget, you should plan in this order: give, save, spend. Here’s what that looks like:

• First, set aside some of your income for giving. We believe you should give 10% no matter where you are on your financial journey. After all, giving is the most fun you will ever have with money, and you can’t put a price tag on having a spirit of generosity!    
• Second, you should budget for your savings goals. If you’re on Baby Step 4, that means investing at least 15% of your gross income for retirement. No exceptions!  
• After that, you can move on to budgeting for monthly expenses. Start with the essentials (like food, shelter, utilities and transportation) before moving on to any nonessentials (like fun money and entertainment).   

Pro tip: When you subtract all your expenses (giving, saving and spending) from your income, it should equal zero. That’s what we call a zero-based budget, and that’s a good thing! It means you’ve given every dollar an assignment. Good job!   

When you regularly make generosity and saving a part of your life, eventually it becomes a habit that gets easier and easier over time. You might have to cut back on some things like eating out or traveling to make room for retirement savings. But making that sacrifice now means you won’t be sweating bullets by the time you want to retire.

4. Invest in your 401(k) or open a Roth IRA.

Where should you put your money to get the most bang for your buck? The easiest and often most effective way to get started is through your workplace retirement plan like a 401(k). In fact, 8 out of 10 millionaires invested in their company’s 401(k) plan, according to The National Study of Millionaires.

Most employers who offer a 401(k) will match a portion of your investment, so invest enough to get the full match for an instant and guaranteed 100% return on your money! But quick note: It’s important to be aware of your employer’s vesting period—the amount of time you need to work for them before you fully own those matching contributions (usually around 3-5 years).

If your employer offers a Roth 401(k) option and the plan offers a choice of good growth stock mutual funds, you can invest the entire amount in your workplace plan. If a Roth 401(k) isn’t available, simply invest up to the employer match in your 401(k) and then open a separate Roth IRA to invest the remainder. The Roth IRA is also a solid option for you self-employed folks.

5. Work with a financial advisor.

Finding the right financial advisor can make a world of difference when it comes to saving for retirement. These professionals don’t just guide your investments—they help you keep your entire financial strategy on track, covering everything from long-term decisions to rebalancing your portfolio and planning for tax and estate management.

Here's another reason why you need a financial advisor: emotions. Yep, those pesky feelings. Let’s face it, we’re emotional creatures, and when you add money into the mix (especially when you’re playing catch up), it’s tough to make rational, clear-headed decisions. Financial advisors use their expertise to give you a 360-degree view of your retirement plan and can keep you from making drastic choices when the market does its usual roller coaster thing.

If you’re thinking, I can handle this myself, think about this: You haven’t. And you don’t have the time or luxury to make risky financial decisions. Now—maybe more than ever—it’s time to ask for help.

It’s Not Too Late to Get Started

Here’s how it all could play out. Let’s say you’re 40 years old and your household income is $80,000. That means you should be investing $1,000 each month into retirement. Whether it’s cutting out that daily trip to Starbucks or saying goodbye to cable, do whatever you have to do to make room in your budget for those retirement savings. This is your future we’re talking about here!  

Now, let’s pop these numbers into our nifty retirement calculator. If you invest that money in good growth stock mutual funds, you could have more than $1.5 million saved in your retirement nest egg by the time you’re 65 years old. And if you held off retirement for another five years after that, you could retire at age 70 with $2.8 million!

You see? It is possible to retire a millionaire—even making less than the national average and with a late start. But you need to get started today!

You may have let the previous 20 years of your career roll by without getting serious about retirement savings, but that doesn’t mean you have to spend the next 20 years the same way. Change your habits now, get on a plan, and change your future for the better!

This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros.