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3 Retirement Moves To Make In Your 40s

3 Retirement Moves to Make in Your 40s

Your 40s are an interesting time of life from a financial perspective. On the one hand, you’re probably past the point of paying off your student loans, and you’re not yet dealing with the astounding cost of college tuition. On the other hand, 40-somethings still have a host of expenses to deal with, from mortgage payments to summer camp to everyday costs that magically manage to increase over time.

If you’re in your 40s, you may be so focused on your immediate expenses that you’ve yet to put much thought into retirement. After all, it’s still a good 20 years away — or more. But your 40s are actually the perfect time to get a handle on retirement, and with that in mind, here are a few moves to focus on.

Man in his 40s walking in a city
Image source: Getty Images.

1. Ramp up your savings

Chances are, you’re earning more in your 40s than you did in your 30s — in which case it pays to stick as much of that money as possible into a retirement account. The beauty of IRAs and 401(k)s is that they offer tax-deferred growth on your investments, which means that instead of paying taxes on your gains year after year, you can reinvest them and grow your nest egg significantly.

Not only that, but funding a traditional IRA or 401(k) will give you an immediate tax break, which will probably come in handy if your salary has increased. A $5,000 contribution to either account, for example, will shave $1,250 off your tax bill if your effective tax rate is 25%.

But crucial as those tax benefits are, the real reason to save aggressively for retirement in your 40s is that you still have time to take advantage of compounding. Say you’re able to save $5,000 a year starting at age 45, with the goal of retiring at 65. If your investments generate an average annual 8% return (which is just below the stock market’s historical average), you’ll be sitting on an extra $229,000 by the time you’re ready to leave the…

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