Personal Finance

If your household brings in $400k per year, this is how much you should have saved by your mid-40s

Kristin Hitchcock

Published: December 10, 2024 9:24 am

If your household earns $400,000 annually, you should aim to have saved approximately $1.83 million by age 45 to maintain your current lifestyle in retirement. This is assuming several factors, though:

• A 15% pre-tax retirement contribution.
• A 28% effective tax rate.
• Annual portfolio returns of 6% before retirement and 5% after retirement.
• Social Security benefits starting at age 65.
• Inflation-adjusted savings to account for future market conditions.

This target helps ensure you’re well-positioned to have a comfortable retirement that can weather economic fluctuations. It isn’t the minimal number; it’s the “comfortable” number. Any less than this, and you could run into some problems later on.

Key Points to Remember

• Whether you’re on track, behind, or ahead, the key to financial security is consistent action and adaptability.
• It’s important to be proactive in adjusting your strategies to ensure that you achieve your financial goals.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

What to Do if You’re Behind

Falling short of the $1.83 million benchmark doesn’t mean all is lost! Here are some steps to help you catch up:

1. Increase Retirement Contributions

Max out your 401(k) and IRA limits each year. This includes catch-up contributions when you become eligible, too. Consider adding after-tax contributions or opening a Health Savings Account for additional savings opportunities, too.

2. Reassess Spending

Cut back on unnecessary spending and redirect your savings into retirement accounts to help catch up. You may need to rethink your budget a bit!

3. Delay Major Purchases

Consider postponing upgrades or vacations to help you reach this financial goal.

4. Consider Side Income

Sometimes, increasing your income is easier than cutting back on spending. Look for side gigs or even promotions that will increase your income.

5. Invest Strategically

What you do with your money is just as important as saving it. Meet with a financial advisor to ensure that your portfolio aligns with your goals.

What to Do if You’re Ahead

If you’ve surpassed the $1.83 million target by 45, take some time to celebrate! Here are some ways you can push this success even further:

1. Diversify Your Investments

Consider looking into real estate or other alternative investments to diversify your portfolio even more. Be sure to stay on top of asset allocation to keep your portfolio in line with your approaching retirement.

2. Reduce Debt

Pay down high-interest debts or consider making extra payments on your mortgage to free up cash flow in retirement. If you have less debt, you’ll need less money!

3. Focus on Tax Optimization

Now is the time to start thinking about how taxes will work in retirement. You may want to invest in a Roth account for tax-free withdrawals, especially if much of your money is in a 401(k).

4. Plan for Legacy and Gifting

Establish a trust or estate plan to protect assets for future generations. Consider putting money towards charities you’re particularly proud of, too.

5. Consult an Advisor for Acceleration

Depending on how much you have saved, you could potentially retire early or cut back to working part-time. You could even jump to a retirement job that offers more flexibility.

You could even increase your future retirement lifestyle by including more travel or other expensive lifestyle adjustments. A financial advisor can work through your options with you to help you better take advantage of your position.