While catching up gets harder over time, experts say it’s not impossible to save for the retirement you want starting in your 40sGetty Images
Planning for retirement can feel like solving a complex puzzle, with each piece representing a decision that could impact your future. But here’s the good news: It’s never too late to take control. In this series, we aim to simplify the process, providing actionable insights to help you confidently manage your financial future.
Andrew Hallam started investing in the stock market when he was 19. By the time the Victoria, B.C. native was in his late 30s, he’d accrued enough to retire from his job as a high school teacher.
Not many of us have that kind of foresight – or to be fair, spare dollars – in those early working years. In fact, it’s quite common for people to not start planning for retirement until their late 30s or even their 40s.
Hallam, who turned his self-taught expertise into a career as a personal finance expert and author, says that even at that age, there’s still plenty of time to build a strong portfolio.
It’s not too late to start saving for retirement
“Catch-up is harder because of how money compounds over time, but someone can end up doing really well even if they don’t start until they’re 40,” he says.
While Hallam emphasizes the feasibility of building wealth later in life, Melissa Leong, a Toronto-based keynote speaker and the author of Happy Go Money, offers a practical starting point: connecting with your future self.
“Imagine yourself in retirement; imagine what your retirement actually looks like and what you’re doing,” she says. “It sounds hokey, but it’s based in science. Studies find that we view our future selves as strangers, and that disconnect makes it hard to take financial action, to protect that future self.”
Making that connection can boost your motivation to look out for “future you” and ensure that whatever you envision – weekly manicures, five-star vacations, a fun but impractical car – for your golden years, will be a possibility.
Conduct a financial audit to set realistic goals
Once you’ve established a vision for the future, the next step is to assess your present financial situation, says Leong.
“This can be scary because you might feel like you’re behind, but do it to see where you stand,” she says. “It could entail calculating your net worth – so, what you own minus what you owe – and then using this number to figure out how close you are to your wealth goals.”
The other part of the audit, she says, is looking at your cash flow – what’s coming in and what’s going out – and determine whether you have a deficit or a surplus to address.
This is an area where it helps to make yourself accountable, says Hallam.
“The single greatest variable [when it comes] to increasing our savings rate is awareness, and we can increase our awareness by tracking what we spend in an expense app. So every time you buy something, actually write in ‘Starbucks coffee’ or whatever. It takes 10 seconds.”
He also notes that when it comes to saving and investing, no amount is too small to start, so don’t be put off if you’re not in a position to set aside a lot of money. “If you have [an extra] $50 a month, that’s $50 a month – if you’re not investing it, that’s less money that can compound for you.”
There are a few other smart moves that will help you reach your financial goals.
One of the easiest is setting up automatic monthly transfers from your main bank account into an account that you don’t touch – you’ll be saving without even thinking about it. Even better, make the transfers to a TFSA and use it to invest.
“The power of the TFSA is that it is an investment account, and your money will grow in there tax-free and you can take it out tax-free,” says Leong. She also notes that you should take advantage of any matching programs offered by your employer “so you’re not leaving free money on the table.”
Smart strategies to build a diversified portfolio
Investing in stocks and bonds is the best way to build your wealth but proceed with caution, advises Hallam.
“The one thing I see people wanting to do is take higher risks,” he says. “They look at the fact that a full stock market portfolio beats a stock and bond market portfolio, so they load up on that because they have to play catch-up. But the problem with that is that it’s going to be far more volatile than a more diverse portfolio. When it starts to gyrate and drops heavily – and a riskier portfolio will – that’s often when somebody will freeze or freak out and they’ll sell at a low point or cease to add fresh money, and that just seals in losses.”
The other common tendency that can get people in trouble, says Hallam, is investing too much in particular funds, stocks or asset classes that have done well recently in a bid to gain ground.
“But what does well during one time period often doesn’t do well the next,” he says. “So that person starting late gets doubly punished for buying what they think is going to be a top performer instead of building a globally diversified portfolio of, say, exchange-traded index funds.”
As to what you should aim to have by the time you retire, that number really depends on how you plan to live.
“You’ll see magazine articles and headlines that say you need $1-million or $2-million to retire, and that’s just lazy reporting,” says Hallam. “It’s misleading because it’s so relative to what you want out of life and whether you get pensionable income from somewhere or, say, have a part-time job.”
To get a very rough estimate of what you might need, try the ‘rule of 25,’ which suggests multiplying the amount you expect to spend annually in retirement by 25. But this is just a simplistic guideline, says Leong. “It doesn’t account for things like inflation, stock market [fluctuations] or government benefits that might kick in for you.”
The main takeaway? Building a healthy retirement portfolio is entirely doable even if you only start in your 40s, daunting as it may seem.
“It might feel like you’re trying to jump over a tidal wave because it seems like such a huge task,” says Leong. “But like anything else, you have to jump over mini waves first. Break down some milestones into bite-size achievable goals that will get the momentum going.”