How to start saving for retirement over 40

If you missed the memo on retirement saving in your 20s and 30s, it's not too late – you can still retire with a hefty nest egg by following these six essential steps. 

Illustration/Jacob Turcotte/Staff/File
Starting retirement savings in your 40s? You'll need to maximize your catch-up contributions and tilt your portfolio toward higher-yield investments, like stocks.

Perhaps you missed the memo urging you to start saving for retirement in your 20s or 30s. Or, if your situation is anything like mine, you started a family early or didn't find your passion in life until you were in your 30s.

Fortunately, it's not too late to start saving for retirement, because you're likely earning more today than you did a decade ago. You should be able to start saving now and still retire with a hefty nest egg. But first, you must take some essential steps.

1. Evaluate Your Savings Potential

Be realistic. Sure, we all wish we could save $5,000 per month, but can you actuallyachieve this based on your earnings and expenses? Remember, no savings amount is so small that it won't positively impact your goals. Save what you can, even if it's only a few hundred dollars per month. There are always ways to push your savings goals further byestablishing a budgetcreating a side businessdownsizing your life, or all of the above.

2. Set a Financial Goal

How much do you need to retire? Start by taking an assessment of where you are financially and where you need to be. How much money do you need to live comfortably in retirement? Do you anticipate a need for $25,000, $50,000 per year, or maybe more? It may be that you have to postpone your retirement by a few years while you make a few adjustments and implement a quick-fix plan to catch up with your goals.

3. Create a Plan

Any good financial plan should begin with an honest assessment of your goals and the steps you'll take to get there. Try using a retirement calculator to determine how much you'll need to save each month in order to retire by your desired date.

You may be surprised by how much money you'll need to save, but don't fear the challenge. Consider working longer, finding a second income, or downsizing your lifestyle to enable progress toward your savings goals.

4. Bias Your Portfolio Towards Stocks

Because stocks offer higher returns than other, less aggressive investments, and you're playing a bit of catch-up, you will want to take on more risk by favoring these over bonds or other more conservative investments. As you grow nearer to retirement, you can take a more conservative investment approach.

5. Max-Out Retirement Accounts and Catch-Up Contributions

Max out your retirement accounts. Take full advantage of employer-sponsored accounts whether your employer offers match contributions, or not. If you don't already have one, open an Individual Retirement Account (IRA) and make the maximum contribution of $5,500. At retirement, given your account has been open at least five years, you can make withdrawals absolutely tax-free.

If you're over the age of 50, the government allows you to make catch-up contributions to your 401(k) or IRA plans, thus enabling you to save even more tax-deferred money for retirement.

6. Take Your Retirement Savings to New Heights

If you need to boost your savings in order to meet your goals, consider falling back on your business consulting skills, or any other skill you've developed throughout your career, and using it to create a second income. Freelancers, independent contractors, and small business owners can deduct many of their expenses.

There's also a retirement savings incentive for being self-employed. The self-employed can set-up retirement accounts that allow both employer and employee contributions. For 2015, annual plan contributions for a SEP-IRA is up to $52,000, SIMPLE IRA is up to $12,500 plus an employer contribution of 3% of income, and the Solo 401(k) is up to $53,000.

The IRS allows the self-employed to make contributions to both an IRA and 401(k). That's a lot of savings towards retirement.

What steps are you taking toward retirement savings after age 40?

This article is from Qiana Chavaia of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

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