By your 40th birthday, you are likely more financially stable in your career than you were in your younger years — which means being able to afford certain financial milestones.
But whether its a mortgage on your first home or starting a family, it’s easy to get distracted from making sure to set aside funds for a certain savings goal in the not-so-far-away future: retirement.
To retire by age 67, experts at retirement-plan provider Fidelity Investments suggest having three times your income saved by the time you turn 40. This guideline includes your cash savings, retirement contributions and any investments.
If you feel overwhelmed with how to get there or what to exactly focus on, CNBC Select has some guidance. Below are three tips to consider when building a savings net by age 40.
1. Put your money into a high-yield savings account or CD
As you near 40, you most likely have a savings account. But it may not be the best one for earning you the most money.
Fidelity’s age-saving guidelines include the recommendation that consumers should save 15% of their income each year (since age 25), putting it into a retirement fund such as a 401(k) or an IRA. But you can earn even more with the right savings account. A high-yield savings account offers interest rates much higher than a traditional savings account and allows you easy accessibility to your cash should you ever need it. Using a high-yield savings account in combination with investment accounts helps you stretch your dollars further.
For the best opportunity to earn a high return, check out the Varo Savings Account. The all-mobile bank offers a uniquely tiered APY program that encourages customers to save more, and it has two savings programs that automatically transfer money from your Varo bank account to your savings account.
If you are confident socking away money for a few months, or years, without ever touching it, a certificate of deposit (CD) is another savings option that is risk-free. Typically, the longer the term length of the CD, the higher interest you earn on your deposit. CDs come with fixed interest rates for fixed term lengths. While being locked into a certain interest rate guarantees a return, you have to make sure you are OK with keeping your money untouched because early withdrawals come with penalty fees.
2. Start saving for your kids’ college early
Parents in their 30s shouldn’t forget to keep their kids’ college savings in mind as they get an early start on their retirement. College savings for your children might not directly correlate to your own retirement savings, but starting a college fund early on can free up money in the later years and help you avoid paying interest on student loans.
Consider contributing to a 529 plan to help fund your kids’ college education. These offer tax-free withdrawals when the money is taken out to pay for college. And, depending on your plan, you can often claim state tax benefits each year you contribute to your 529 savings account. There are even credit cards that let you put cash back into a 529.
The Bank of America® Premium Rewards® credit card lets parents who have a 529 account with Merrill Lynch to use cash back toward their children’s future college education. The Upromise® Mastercard® offers 1.25% cash back on every qualifying purchase, but when you link your card to an eligible 529 College Savings Plan, you’ll earn 15% more on the money you deposit.
3. Increase your retirement contributions
There’s a good chance that when you land your first full-time job in your 20s, you only put a small percentage of your salary into your 401(k) retirement account.
But as your salary has likely increased in your 30s, as you enter your 40s, see if you can up your contributions. Generally, financial advisors recommend contributing 10% to 20% of your salary toward your retirement fund.
Make sure you are putting away enough of your paycheck into your 401(k) account to receive any employer matches, if your company provides them. For instance, if your company offers a 6% match, try to put at least that much away and increase it a little bit every few months or each year.
And if your employer doesn’t offer a 401(k)-sponsored plan, consider putting money away in individual retirement accounts like a traditional or Roth IRA.
If you are near age 40 and don’t have 3 times your income saved, don’t fret. Look to simple ways that you can increase the value of any extra funds you have, such as depositing them into a high-yield savings account or CD. If you have kids, it’s never too early to start saving for their education and credit cards can help you do so. And, when it comes to your retirement fund, every little increase helps.