How Much Should Investors Have Saved by 40?

Are you looking for some guidance? We’ve got it. Here are the amounts most Canadians should have saved by 40 and how to get there.

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When it comes to saving, there is, of course, no one-size-fits-all method. However, there are guidelines that Canadians can use to come up with some answers as well as averages to consider when getting to those answers.

Today, we’re going to look at it all: the guidelines, the averages, and, of course, how to catch up if you’re falling behind.

The guidelines

First off, let’s consider the guidelines. The amount someone should have saved by age 40 can vary widely based on individual circumstances such as income, expenses, financial goals, and lifestyle choices. However, financial experts often suggest having a savings equivalent to three to six months’ worth of living expenses as an emergency fund. This emergency fund can provide a financial cushion in case of unexpected events like job loss, medical emergencies, or major repairs. 

Additionally, by age 40, many people are advised to have started saving for retirement. While there’s no one-size-fits-all answer, a common guideline is to aim to have saved about three times your annual salary by age 40. This can help ensure you’re on track for a comfortable retirement.

From there, Canadians will need to consider extra items that fall into their own individual circumstance. That might include saving for a child’s education. It might include more healthcare costs given your family or individual background. But we can then look to some averages to come up with some numbers that might fall close to your own circumstance.

The averages

To come up with the average amount needed by the time you’re 40, we’re going to have to look at the average salary of a 40-year-old Canadian. In this case, the average Canadian between the ages of 35 and 44 in 2021 was $68,000. This is based on average income from the most recent data from Statistics Canada.

So, from there, let’s look at those guidelines. If you want to save five months of living expenses in an emergency fund, you would need to figure out your monthly income. At $68,000, that monthly income would be $5,667. For five months, you would need an emergency fund at $28,333 for this amount.

So, that’s the emergency fund. For retirement, however, you should aim to have at least three times your annual salary. For a 40-year-old, this would mean holding $204,000 in savings for your retirement by this age.

Now, that’s a huge number and unlikely to be what you have. That’s a total of $232,333 saved and set aside for an emergency and retirement. But if you’re not there, don’t worry! Here’s how to catch up through investing.

Never too late

First off, it’s never too late to start investing. In fact, there are ways you can start catching up right away. First off, assess your current situation and come up with clear goals. Create a budget that also allows you to start living below your means. You can also consider earning more income by asking for a raise or even applying for other jobs.

Then, start automating everything: your bills, your debt payments, and, of course, your savings. Invest then in companies and funds that make sense to you. A great way is to invest in an index fund such as iShares Core MSCI All Country World ex Canada Index ETF (TSX:XAW). The ETF provides exposure to a broad range of global stocks, excluding Canadian equities. It tracks the MSCI ACWI ex Canada IMI Index, which includes large-, mid-, and small-cap stocks from developed and emerging markets worldwide.

While XAW does not specifically focus on dividend-paying stocks, it does include many companies that pay dividends. Additionally, the fund aims to provide investors with long-term capital growth by investing in a diversified portfolio of global equities.

Altogether, you can quickly catch up and start investing, working towards that $232,333 efficiently and without any more future worry.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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