6 tips for saving for retirement in your 40s

Saving for retirement in your 40s is possible, but it looks a little different from planning in your 20s. Use these six tips to get started.

It happened in the blink of an eye. Yesterday you were moving into your first apartment and starting your career, and now you've climbed the corporate ladder and settled down with your growing family in a comfortable suburban home. Your 40s are speeding by, and you're wondering if it's too late to start building your retirement savings. There's a clear answer here: no!

Saving for retirement in your 40s looks a little different than it does for someone starting in their 20s, but it's absolutely possible. Use these six tips to position yourself for success.

1. Don't panic ... plan!

Once you reach your 40s, retirement doesn't seem like it's a lifetime away anymore. If you haven't yet started building retirement savings, that might be intimidating, but don't panic. Instead, tracking spending, making a budget, and creating a financial plan should move right to the top of your priorities list. Completing these exercises will give you the tools to estimate how much you want to save and what strategies will help you find money you can put toward saving for retirement. (Keep in mind that many experts suggest that you'll need 70 percent of your current income in retirement.)

Completing a comprehensive financial plan may uncover overlooked saving opportunities. For example, refinancing a mortgage can help you consolidate debt, reduce your total interest, and free up money to invest. It could also clarify your vision for retirement. You and your advisor might even find areas for improved tax efficiency, meaning more of your hard-earned money can pad your retirement savings.

2. Maximize RRSP contributions in your high-earning years

Your 40s and 50s might be your highest-earning years. Of course, higher earnings in Canada generally come with higher taxes. A Registered Retirement Savings Plan (RRSP) offers tax-deferred retirement savings that grow tax-free. You won't pay taxes on your current high-income tax rate when you make your contribution today. Instead, you'll pay income tax when you withdraw money from your RRSP at whatever rates apply during what will probably be your lower-income retirement years.

You can find your accumulated RRSP contribution room (also known as your deduction limit) on the bottom of your latest notice of assessment, which you receive after filing your income tax return. Your contribution room accumulates at a rate of 18 percent of your previous year's taxable income, with an annual contribution cap of $26,230 for 2018 and $26,500 for 2019. That's without including any previously accumulated contribution room.

3. Take a look at your employer plans

If you're getting serious about growing your retirement savings in your 40s, explore employer plans like pensions, employee share ownership plans (ESOPS), and group RRSPs.

Employer plans can encourage retirement savings to grow faster, especially if they offer a full or partial contribution match. Automatic contributions on your paydays reduce the chance that you'll miss making a contribution. Talk to your advisor about how your employer's contributions toward your pensions could impact your RRSP contribution room.

If your retirement timeline just doesn't seem realistic within your current time frame, one alternative is to lengthen your time horizon, work a few extra years, and keep building your retirement savings."

4. Consider your time horizon

When do you want to retire? If it's within the next 20 years, you'll need a plan to save more money in a shorter time than, say, someone who started their planning at 25. If your goal just doesn't seem realistic within your current time frame, one alternative is to lengthen your time horizon, work a few extra years, and keep building your retirement savings. Canadians with available RRSP contribution room can keep contributing to an RRSP until December 31 the year they turn 71, or to a spousal RRSP until December 31 the year their spouse turns 71.

5. Understand asset allocation

Asset allocation involves selecting investments and choosing how much to invest in different investment categories — such as stocks or mutual funds, cash, or guaranteed investment certificates — based on your risk tolerance, goals, and investment timeframe. 

When you begin saving for retirement in your 40s, you might have another 20 years before you start withdrawing from your savings. That said, your suggested asset allocation might still look different from a 40-something who started investing in their 20s.

The right investment mix for you depends on your time horizon, risk tolerance, financial knowledge, current income, additional forecasted retirement income, and any other assets. Your advisor will be able to tell you what the right allocation for you looks like.

6. Look into alternative investments for retirement income streams

Remember, retirement savings and income don't just have to come from your savings. You could borrow to invest or work part-time to build savings. Your retirement might eventually include alternative income-generating investments such as tax-preferred dividends, a small business, consulting, or a rental property.

The key to starting to develop a financially comfortable retirement in your 40s is to assess your financial situation, make a realistic plan, and stick with it. When you've got the money side covered, you can focus on all of the other important questions you have to answer to create your dream retirement.


This content is for information purposes only and is not intended to provide specific financial, tax, or other advice, and should not be relied upon in that regard. Individuals should seek the advice of qualified professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.