I'm 40 and I Haven't Started Funding My IRA. Is My Retirement in Trouble?

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  • When you're getting close to the midpoint of your career, it's important to have some money set aside for retirement.
  • If you're 40 and don't have money in your IRA, it's time to start prioritizing it.
  • Consider banking your future raises and cutting non-essential expenses to prioritize your retirement savings. 

It's not a perfect situation, but all is far from lost.

You'll need savings of your own to cover your living costs in retirement, since Social Security won't be enough. And so by the age of 40, you should ideally have some money socked away in your IRA account.

But what if that's not the case? You may have put off retirement savings in your 20s to focus on things like paying off your credit cards and educational debt. And you may have spent your 30s saving up to buy a home, covering the mortgage payments associated with that home, and paying for childcare so you could hold down your job.

In fact, it's easy to see how you may have gotten to your 40th birthday without any money in your IRA. And rest assured that you're not the only person in this situation. 

But it's a situation you need to remedy, and soon. By age 40, you may be close to the midpoint of your career, which means your window for saving for retirement is dwindling. So if you've yet to fund your IRA, it's time to make those contributions a big priority.

How much should you have in your IRA by age 40?

Fidelity says that by age 40, you should ideally have three times your annual salary socked away in your IRA. So if you earn $75,000 a year, it means you should be aiming for an IRA balance worth $225,000. 

If your balance is $0, it means you clearly need to play catch-up. The good news, though, is that there's time to play catch up if you start prioritizing your long-term savings.

First, take a look at your budget and see what your essential and non-essential expenses entail. You may not have much wiggle room in the former category. But if you're willing to make sacrifices in the latter category, like canceling cable, dining out less frequently, and taking cheaper vacations, you might manage to ramp up your IRA contributions quite nicely. 

Another strategy you can use is banking your raises as they come in. If you make a point to save all of the extra money you get in your paychecks year after year, you can get into a good groove. And that might make it so you can fund your IRA steadily without having to deny yourself the things you enjoy.

In fact, let's say you're able to start pumping $400 a month into your IRA, and that you do so for the next 25 years. Let's also assume you're able to invest that money at an average annual 8%, which is a reasonable assumption for a window that long. (For context, the stock market's average over the past 50 years is around 10%, as measured by the S&P 500 index.) All told, that would leave you with an IRA worth about $350,000.

Don't panic, but get serious

If you're 40 years old with no money in an IRA, there's no need to panic. But you should also recognize that if you don't make an effort to start saving soon, your retirement might truly suffer. Rather than run that risk, do what you can to start funding your IRA immediately -- even if it means having to make some sacrifices along the way.

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