Money Milestones: This is how your finances should look in your 40s

Danny Kofke, a 41-year-old middle-school teacher outside of Atlanta, often looks at a picture of a family trip to Disney World from a few years ago -- to him, it exemplifies what he’s working toward in his retirement: more trips and long-lasting happy memories.

He and his wife, Tracy, a former schoolteacher and now a technology coach, started saving when they were first married in 2000, putting away money every month and increasing their savings as they received raises. They recently had to adjust their contributions to pay off the last of their debt, and plan to be debt-free this fall, but they’re making it up with sound and stringent financial decisions.

“Having an eye on the bigger prize helps us say no to things daily,” he said. This includes having a car he can’t charge his iPhone in because it came out before the iPhone was introduced — a small price to pay for not having a car payment in 13 years.

The 40s decade is a critical time for retirement savings, as it is likely when a person will reach their peak income and can make a dent in their long-term goals if they haven’t yet begun to do so. For a 40-year-old with nothing saved for retirement, putting away $650 a month (about 15% of a $50,000 salary) can get them $1 million in retirement savings by age 67, according to calculations on personal finance personality Dave Ramsey’s website. (That’s not too far off from the amount in savings for the median working-age couple, which is $5,000, according to a 2013 Federal Reserve survey of consumer finances).

Maximizing earnings should be a main focus in your 40s, experts said. This includes negotiating salaries, asking for raises or finding additional income. If a salary isn’t enough to support your lifestyle and retirement savings, there are two additional options: the first, create or look over your budget and see what can be cut — the second, consider a side hustle, said Jill Cornfield, who writes about retirement for personal finance site Bankrate.com. You can start with a hobby, or build a mini business and eventually make that side gig a full-time job if you’d like. Regardless, saving as much as you can is important. “I have never heard someone who said ‘I wish I hadn’t saved so much.’”

Now is also the time to begin using various types of accounts for retirement funds, said Patrick Amey, a financial adviser at advisory firm KHC Wealth Management Services in Overland Park, Kan. Max out employer-sponsored retirement accounts, such as a 401(k) or 403(b) plan, and use Roth Individual Retirement Accounts (IRAs). The third option is a taxable investment account, that they can use in the early years of their retirement as their tax-deferred accounts (the first two types) continue to grow. Cornfield said a good estimate is stashing away 8% to 12% of your salary, whereas Amey said anywhere from 10% to 15%.

Sticking to a plan is also key to having a comfortable amount of assets when it’s time to retire, something Joe Mecca, a 40-year-old marketing manager at Coastal Federal Credit Union in Raleigh, N.C. has done, he said. Even when finances were tight — such as student loans, auto loans and at one point his dual-income household becoming a single-income household — he remained steadfast on contributing to his future’s funds, knowing the money would grow to his benefit. He did admit it would have been easier to stop contributions so he could have more cash flow every paycheck, though.

​“I had to have faith in the system,” he said. “Even as I was going through different life changes I have always trusted the plan.”