Your 40s can be an incredible time to invest. Generally speaking, you're somewhere near your peak earnings years, which means you're more likely to have cash available to invest than at any other time in your career. In addition, with a couple of decades left before traditional retirement, you still have time to let compounding work its magic to help you build a serious nest egg. Indeed, if you want to be rich in your 60s, your 40s represent your last, best hope to set yourself up on a course to get there.

To get there starting from scratch, you need to commit to the following:

  • Invest a decent chunk of money consistently, every paycheck.
  • Be willing to invest in stocks or stock-based mutual funds.
  • Accept that short- to mid-term losses are part of the total package of investing.
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What's possible for the 40-something investor?

With at least 20 investing years ahead of you, you have the potential to amass a better than $1 million nest egg within your 60s, just by using the qualified retirement accounts likely available to you. As an employed 40-something year old, you can sock away $18,000 per year in your employer-sponsored 401k and $5,500 per year in your IRA. Over time, the stock market has delivered returns near 10% annualized, though those returns are spiky and certainly not guaranteed.

The table below shows the details of how leveraging those retirement accounts to their fullest can get you that million-dollar nest egg while you're in your 60s:

Monthly Investment

10% Annual Returns

8% Annual Returns

6% Annual Returns

4% Annual Returns

(Max out IRA & 401k) $1,958





(Max out 401k only) $1,500










 (Max out IRA only) $458





Table by the author. Assumes 20 years of consistent monthly investing and returns.

If you want to save even more, or if you don't have a 401k or equivalent plan available to you at work, you can invest more than those limits in an ordinary brokerage account. Still, if you're starting from $0, it might be a challenge to come up with $1,958 of investments per month, much less figure out a way to save even more than that. Nevertheless, notice what happens the further down in that table you get. The less you sock away, the lower your total portfolio value winds up, no matter what returns you earn.

Why prioritize those retirement accounts?

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Retirement accounts bring with them some incredible benefits that make them great places to help you build your nest egg. First, all qualified retirement accounts (like 401ks and IRAs) compound your money in a tax-deferred manner. That means dividends and capital gains received while the money remains in those accounts are not subject to immediate taxes, helping your money grow more efficiently.

Additionally, in traditional-style 401k plans, and in some cases for traditional-style IRAs, you can get a tax deduction for contributing to the account. That deduction helps you sock away money faster. For instance, if you're in the 25% tax bracket, for every $1,000 you invest in the plan, it only costs you $750 in otherwise spendable money -- even less in most cases if you face a state income tax as well.

As if those two benefits weren't enough, many employers offer matching contributions for employees who contribute to their 401k plans. That's even more money added to your retirement account to compound for you and get you rich even faster.

Once contributed, get the market's return

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Regularly putting money into your account is the first -- and toughest -- step to getting rich by your 60s, but that alone won't get you there. Once it's in your account, the money needs to be invested in a way that gives you a reasonable chance at the compounded growth you'll need to reach those eye-popping sums of cash.

That's where a market-tracking index fund like the SPDR S&P 500 ETF (NYSEMKT:SPY) can be a powerful investment for your portfolio. As an exchange-traded fund that tracks the S&P 500, the SPDR S&P 500 ETF offers you a low-cost way to essentially match that key market index's return, less a minuscule 0.09% expense ratio. Invest in that ETF with every paycheck starting in your 40s, and you'll have a solid chance of winding up rich in your 60s.

Believe it or not, that simple one-fund strategy beats the vast majority of professional, actively managed mutual funds, year in and year out. While there are no guarantees that the market itself will rise in any given year, the costs associated with running an active mutual fund make it difficult for even the best managers to reliably outperform it. That makes the strategy of buying an index fund like the SPDR S&P 500 ETF with every paycheck a superb option for investors with a long-term time horizon.

Lather, rinse, repeat

Once you've made the life-changing decision to invest a decent amount of cash toward your retirement and decided on an investment strategy designed to get you there, your next step is to simply keep it up. Starting in your 40s, making a single, one-time investment isn't likely to be enough to get you rich in your 60s, but staying committed to the plan over the next 20 years will give you a great shot at getting there.

Chuck Saletta has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.