I'm a financial planner, and I've figured out the best retirement advice I can give to people in their 40s (2024)

Our experts choose the best products and services to help make smart decisions with your money (here's how). In some cases, we receive a commission from our partners; however, our opinions are our own. Terms apply to offers listed on this page.

• People in their 40s are often pulled between two groups who need them — their kids and their aging parents.
• But saving for your own retirement is critical — there is no one else to do it for you.
• By 40, you should be saving the annual max in your 401(k) and an IRA, and aiming to put away whatever you need to in order to meet your retirement savings goals.

If you are a worker in your 20s, it is solid advice to say that, at a minimum, you should be contributing enough to your 401(k) each year to get your company's full match. And even in your 30s, as a baseline, it is acceptable to continue taking this path.

However, in your 40s, retirement becomes a much more real conversation, and if you are not making the maximum allowable contribution to your 401(k) plan every year, you need to develop a plan to begin doing so immediately.

Contribute the maximum to your 401(k) and an IRA

It is often said that when it comes to saving for retirement, the earlier, the better. However, even for those in their 40s who have not made any meaningful efforts to save to this point, it is not too late. With that said, it will take a serious commitment to making up ground, which will need to begin with making the maximum allowable contribution to all retirement accounts from here on out.

A person in their 40s who is serious about saving for retirement should also be in the habit of contributing to an Individual Retirement Accountby this point. In 2020, those two contributions combined would cap out at $25,500. All things remaining equal, that would amount to over half a million dollars in additional savings over the next two decades. That is to say nothing of the impact that investing and compounding will inevitably have on those savings over time as well.

The challenges facing the 'sandwich generation'

That may sound simple and straightforward, however, Gen Xers, or those in their 40s, face a different and unique problem from those in the generations just before or just after them. In fact, Gen X is referred to as the sandwich generation — and for good reason. They are being squeezed financially from both sides.

On one hand, they have the usual financial commitments associated with raising children and supporting them in their countless activities. But in addition, this generation is often faced with the challenges and pressures of providing financially for their parents as well. Not to mention the emotional toll caring for an aging parent can take.

The uncomfortable truth is that just as an emergency room doctor with finite resources must triage and make the tough decision of which patients' care will take priority, so must a person with competing financial objectives.

Begin by setting a goal for how much you know you need to have saved up for yourself by the age you would like to cease working, and then work backwards. For example, if a 45 year old decides they would like to have a nest egg of $500,000 by age 65 and they have saved $200,000 to date, then they would have to set a savings goal over the next 20 years that would fill that $300,000 gap. And once their own savings plan is established and implemented, they could move on to the other people they care to help.

Be realistic about what you can do with your money

If sending your kids to college is a priority, it is important to determine if and how much you will help them pay for it. Most people would love to send their kids to college with all expenses paid, but is that realistic? Since many workers' incomes peak in their mid 40s, you likely have some idea by this point of what is possible.

You are better off letting your children know now what the plan is. And remember to be as candid as possible when discussing it. If there will be $10,000 per year available to help them cover their college costs and the rest will be on them, tell them that. It is important to set proper expectations and suggest they choose their future school wisely.

And when it comes to supporting mom and dad, maybe it's your turn now to be the one dishing out the allowance. Let them know that you have done the math and determined the exact dollar amount that you can safely afford to help them with each month before it becomes a burden on you. That way, while they are doing their own planning, they know exactly where your line is and can act accordingly.

There is a reason that every single time you board an airplane, the flight attendant warns that in the event of an emergency, your first priority should be to secure your own oxygen mask before you look to assist anyone else with theirs. That is because the Federal Aviation Administration has done the research and determined that if done in reverse, you are less likely to successfully assist anyone else with their mask, and more likely to run out of oxygen in the process, ultimately requiring assistance yourself.

Malcolm Ethridge, CFP, CRPC, is an executive vice president and fiduciary financial advisor with CIC Wealth Management.