By the time you hit age 40, you should have a decent amount of cash saved up — both for emergencies and your future retirement goals.
But saving is hard. It takes concerted time and effort, and for best results? You need to start early.
Have you started saving for your future yet? Just want to make sure you’re on track to do so? Here’s what to keep in mind.
How much you should have saved at 40
At age 40, you should have both an emergency fund and a good amount of retirement savings stowed away.
According to Joe Hartman, co-founder of Perry Hall Investment Group and strategic real estate investing consultant at Real Estate Bees, your emergency fund should be able to cover at least three to six months of household expenses.
If you don’t have that much just yet, Hartman recommends setting up a bank account that you have limited access to. (Maybe forgo setting up that online login or choose a high-yield savings account with a small withdrawal limit).
Credible can help you find a high-yield savings bank account provider and interest rates that will boost your savings. Check out what options — from each banks’ minimum balance requirement to its APY — are currently available.
In terms of retirement, the amount you’ll want to be saved really depends on your lifestyle, where you live, your household size and any big-ticket items you plan to purchase. Generally speaking, though, you should have at least three times your salary saved up by age 40 — or a third of your long-term retirement goal.
Aside from the better interest earnings, high-yield savings accounts also offer a way to build wealth without too much risk. This makes them a good place to store emergency savings and sudden windfalls, like inheritances.
“40 is also the age where many folks start to experience large windfalls of funds,” said Ben McLaughlin, head of Save Better. “No one wants to think about inheritances, but it’s a financial reality that has to be properly managed. It’s important to have a plan in place beyond simply tucking them away for a rainy day. If you have a low-risk tolerance, placing them in high-yield savings accounts or laddering them in certificates of deposit will allow those funds to grow safely, insured, and without the volatility of the stock market.”
High-yield vs. traditional savings account
Traditional savings accounts won’t do much to help you build up your savings, even in the long run. To maximize how much is in your emergency fund and any cash you put toward future goals, a high-yield account is usually best. While the interest rates on these vary, they generally have a significantly higher APY than your typical bank account, allowing you to earn interest and start building that balance faster.
If you do opt for a high-yield savings account, make sure to shop around, as APYs and other details can vary widely.
“When putting money into savings products, it is important to keep an eye out for FDIC insurance as well,” said McLaughlin. “FDIC insurance protects your deposits up to $250,000 per institution, even in the unlikely event that the banks they’re held in were to collapse.”
