How Much Do You Really Need to Start Investing in Your 40s?

What you need to know about 401(k) matches

There is a powerful resource within your 401(k) that can help you jump start even the smallest amount of savings. Most employers — more than 80%, according to one study from the Plan Sponsor Council of America (PSCA) — will match a portion of employee 401(k) contributions. The highest matching rate available is slightly less than 5%, PSCA found.

This pre-tax profit is essentially free money. Make sure you offer enough to get a match for your company.

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How much should you save?

If you’re saving for retirement, you better start early, even if that means starting small. How little can you save and make a difference? You might be surprised to find out that you can start building a nest egg for just $50 a week.

Here are some quick calculations to put yourself in perspective using the average 10.5% annual growth rate the broad-based S&P 500 index achieved back in 1957 (though keep in mind that market growth in any given year can vary greatly, and past performance does not guarantee future returns). If you save $50 a week (about $217 monthly) starting today, your contributions can add up to just over $26,000 in 10 years. Compare that to waiting another five years, and saving twice as much — $100 a week or about $433 a month — for the next five years.

Although the total of your contributions is the same at a little more than $26,000 the end result is insignificant: Donating $50 a week for 10 years gives you more than $42,600, compared to about $32,200 if you give $100 a week for five years.

That difference of more than $10,000 is thanks to the magic of compounding. When you start saving in your 40s, you don’t have as much time on your side as someone in your 20s, but you can still make a meaningful difference to your nest egg by consistently contributing to your savings accounts.

If you need help planning, use the Securities and Exchange Commission’s online calculator to see how much your money can grow over time.

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Organize your savings automatically

If you have a 401(k), contributing enough to get your employer match is a good first step. But you don’t necessarily need a 401(k) to start growing your nest egg.

You can also set up an IRA, deciding whether a traditional pre-tax account or a Roth account funded with after-tax dollars would be better for your financial situation. Major online brokerage firms such as Vanguard, Fidelity and Charles Schwab make it easy to open these accounts.

The best set-it-and-forget tactic to make sure you stay on track is automating your retirement savings. Link your new retirement account to your checking account and set up automatic weekly or monthly transfers to it.

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Don’t let a lack of investment knowledge hold you back. Making contributions to a passively managed target date index fund using your target retirement year as a target will get the ball rolling, keep your costs low and allow you to start taking advantage of market growth.

And don’t wait for the “right time” to invest or fear it’s too late. The time is right now, as consistent contributions now are better than playing catch-up later. Even small amounts, if invested consistently and wisely in a low-fee index fund within a tax-preferred retirement account, can grow significantly over time.