A lot of the investing advice out there is aimed at younger people, but what if you’re older? What if you didn’t have the money or the knowledge to start investing until you were in your 40s? That’s what we’re going to talk about today– How to start investing at age 40+.
Should you even start investing if you’re 40 or older?
Let’s start with the biggest question that I get from people who are a little bit older: should you even start investing if you’re in your 40s? Does it it even matter or is it too late? The answer is simply no. It is not too late.
If you’re more of a visual learner, check us out on Youtube and watch the video below.
Consider this: most people in the United States retire somewhere in their mid-60s. If you’re 40 right now, and you want to retire at 67, that is 27 years. That’s nearly three decades! That is a huge amount of time that you have to build wealth for yourself.
In my opinion, because of social media have built up these unrealistic expectations for what wealth building looks like. The reality is that most people are not millionaires by 25. Most people are not owning three houses and have $5 million in the bank by the time they’re 37. We can see how other people, including the hyper-wealthy, and we compare ourselves to them. We think: why don’t I live in Portugal? Why don’t I have $2 million? Why don’t I drive a really fancy car?
Focus on what’s right for you and your money
Think about it this way: if you can run a 7-minute mile, you run a pretty fast mile. You’re going to feel really good about that until you start comparing yourself to the person who can run a 4-minute mile.
Actually, if you zoom out, 7 minutes is something you’ve worked really hard for. 7 minutes is something not a lot of other people can do. 7 minutes is something that you should feel proud of. Ignore the people who are bringing you down and focus on what is right for you and your money.
Consider this: if by 40 you have paid off your student loans, you have no credit card debt, maybe you have bought an asset like a house, you have done really good things for your financial life.
Maybe you haven’t started investing yet, but that does not mean you’ve been sleeping for the first 40 years of your life. You’ve done other really wonderful things for your financial picture and those should be applauded. The next step is just to add in investing.
Most Americans Start Investing Later in Life
The truth is most Americans start investing later in life. According to the Survey of Consumer Finances, most people under age 35, have $13,000 for retirement. Most 35-44-year-olds in the United States have around $60,000 earmarked specifically for retirement. Americans start investing later in life in general because living in the United States is expensive.
On top of that, most of the most expensive decisions that you will make happen between age 20 and 35 in the United States. In these 15 years, most people are going to college. It’s when most people are getting married, having children, and buying houses.
Those are all very expensive decisions. So if you’re doing all of these things, you probably don’t have a ton of money to put towards the stock market until your 40s.
Instead of beating ourselves up, let’s talk about the action steps that you can take now that you’re in your 40s and beginning to focus on your retirement. Here is a five-point plan for investing at 40 plus. Now for this investment plan, we are assuming a traditional retirement age of 65.
If you’re interested in leaving work earlier than that, you’re going to work with different numbers. If you are interested in leaving work later than that, again you’ll be working with different numbers. For this calculation, we are using age 65.
Once You Hit 40, Investing Should Be Your #1 Priority
I want to put a little disclaimer up here at the top before I get into the actual steps. Investing is the number one financial priority by the time you hit 40. If you are watching this video and you’re thinking oh I’ll postpone investing by a couple more years because I want to help kids with college or I want to upgrade the car, hear me when I say: investing is the number one priority.
Your kids have time on their side. They can take out grants, loans, or scholarships. You cannot take out a loan for retirement. It does not exist. Your investing plan has got to become the priority in your financial life.
While you’re educating yourself more on investing, read this post on why you shouldn’t listen to Dave Ramsey’s investing advice.
How to Start Investing at Age 40+
Step 1: Have a Money Management Plan
We start investing by having a money management plan. We need to know what’s coming in and what’s going out, so that we can find an amount of money to put towards our investment strategy. This means that our first step in investing at 40 is actually to have a budget. Sit down with your credit card, debit card, any loans that you have, any account that you already have, and review your money.
Ask: what’s coming in? How much do you get paid from your main job? How much do you get paid from your side gig? Do you have a partner? How much money are they making? Then look at your expenses. What areas are needs? What area are wants? Is anything negotiable? Do you make a lot of money and you just need to organize it? Or do you need to earn more money? What do the numbers tell you?
Budget without shame
All of these are questions that you can answer via budgeting. Now, I also want to put a disclaimer on here because a lot of us have a difficult time looking at our budgets because of the emotions behind it. If you have $55,000 in credit card debt, it’s very easy to feel shame or embarrassment around that. But I always tell people hindsight is 2020 and you probably did the best that you could at the time with the information that you had.
It’s very easy and very common when we’re younger to think, I’m going to live forever and I’ll figure this out later. I definitely felt that and in some cases still feel that at 35, so please give yourself some grace when you’re looking at this. Don’t sit down and begin yelling at yourself because that’s going to demotivate you. When it comes to putting together your investing plan in your 40s, we are looking for all the motivation that we can find.
If you need help budgeting, we have a Values-Based Budget workbook that helps you get organized and build a budget that emphasizes your values. This workbook is all about building a budget that works for your life.
Step 2: Take advantage of your workplace retirement plans
The second most important part of building your investment plan in your 40s is taking advantage of your workplace plan. If you have a company 401K, a 403b, or a 457 that is offered to you through work, take them up on it. If you have this and you simply have not been putting any money in it because you think you need the money elsewhere in your life, it’s time to reclaim some of that money. Even if it’s small. Even if it starts with 20 bucks a month, put that money away.
The great thing about a workplace retirement plan is that your workplace manages it. So they are going to take the contribution directly out of your paycheck. It’s never going to hit your bank account, so it’s not going to impact what you have to budget every single month. I think that is a huge load off of the shoulders for a lot of people. That is the minimum of what you need to be doing for your investments. That is free money. It’s part of your compensation and benefits that goes along with you being hired by that company. Take advantage of it and have your company contribute to your retirement!
Step 3: Open an IRA
Step three in investing at 40 plus is to open an IRA. This is an account that is specific for retirement that is available to anyone. An IRA is something that is available to anyone. It is tied to your social security. Or, if you’re not a full citizen and you are a legal resident, you can also open an IRA. My first gen kids who are freaking out about being their parents retirement plan, help your parents open an IRA and then get you one for yourself!
Now IRAs do have significantly lower contribution limits. For 2024, the max amount of of money you can put into an IRA is $7,000 for the year. Whereas if you have a 403b or a 401k, the max amount that you can contribute is $23,000 ,so it’s obviously a huge gap. If you do have a workplace plan, you can also open an IRA. Having these additional accounts helps increase the total amount of money that you can be investing annually which is super helpful when you are starting in your 40s.
If you can put $23,000 into your 401k and $7,000 into your IRA, that’s $30,000 a year, baby! That’s a lot of money that you are investing. Don’t freak out if you can’t do that. If you put $3,000 in your IRA and $2,000 in your 401k, that’s also still a ton of money and you should be very, very proud of that. We also have an investing course called “How to Not Die Broke” that has a step-by-step guide to help you open an IRA.
If you’re interested, here are a few posts that go over sustainable investing so you can invest and help the planet at the same time:
- How to Invest in Sustainable Funds on Vanguard
- How to Invest Without Killing the Planet
- How to Start Investing in ESG Funds
Step 4: Secure your housing
Step four for investing in your 40s is to secure your housing. This is a step that a lot of people skip over when they think about their retirement planning. People just don’t focus on it as much as I think they should. Stable housing is crucial to a stable retirement. You can rent or you can own. I’m not advocating for either one, but what you want is a secure place where you can live.
Take some time to answer these questions: do you plan to stay in your current location whether that’s the actual physical building or the city or state that you’re currently in? Do you plan to move, if so where? What does housing look like there? Are they in a housing crunch? Is housing more expensive than where you currently are? Is it less expensive and what is the difference? How much space do you need or want? Are you open to living with other people like a roommate or a family member?
Getting really clear on these answers is so important because housing is usually the biggest line in anyone’s budget. If you can decrease your housing needs in the future, that’s more money that you can put into accumulating assets AKA investing.
Step 5: Talk about money with the people in your life
It’s also important to answer these questions because it leads very nicely into step five which is talking to the people in your life about money. Talk to your partner, your kids, your friends, and your parents. Talk to the people in your life whose money either impacts you or who your money impacts.
If you have a partner and you share money, then you want to move to Florida and they don’t know that, that’s a conversation you need to have. You need to find some sort of middle ground or you need to get them on board for Florida. But you can’t just up and go and take half of their rent payment with you.
You also need to have conversations about longer-term plans if, for example, you want to live with your children after you retire. You need to have that conversation with your children.
Are you going to move into the spare bedroom? Do you want everyone to move into a bigger house? Do you want to add an in-law apartment to their house? What does that look like? What are the costs associated with that? Do you and three friends want to finally go start that commune in Montana? What part of Montana?
What are the costs associated with the area? Having conversations now, in your 40s about what you want in retirement is going to make that more realistic. You’ll then have time to put that plan into place and it’s going to make it easier if it involves other people.
Coming up with resources takes time too
Something that I see a lot in the work that I do with people one-on-one is adult children in their 30s and 40s being told by parents in their 60s and 70s that they have a financial expectation for you. Then the adult child hasn’t had enough time to come up with that money or to come up with the resources needed. It puts a strain on everybody. This is something I think about a lot in my own life. It’s also something that affects millions of people. We are a nation of immigrants and a nation of diverse cultural expectations. Money can get caught up in both of those things very easily.