How to build wealth in your 40’s (it's never too late!)

Your 40s are the ideal time to begin building wealth. You’re in the middle of your peak income-earning years, and while you may have more expenses, you probably also have some money stashed in retirement accounts and other investments.

If your current nest egg isn’t quite as large as you’d like it to be, that’s OK—it’s never too late. Here are 9 ways to build wealth in your 40s, including ideas for generating recurring cash flow well into your retirement years.

Key takeaways

  • Your 40s are your peak earning years, making them the perfect time to begin building wealth.
  • As a rule of thumb, a 40-something should have at least 2 times their annual gross income in savings and investments.
  • Ways to build wealth in your 40s include diversifying your investment portfolio, investing in assets that generate recurring income, and planning your estate.



How much net worth should a 40-year-old have?

People in their 40s have an estimated median of $107,000 in retirement savings, according to the 21st Annual Transamerica Retirement Survey of Workers. You're in good company if that number seems pretty low to you. 

Many experts suggest that a 40-year-old should have a net worth of at least 2 times their monthly salary. So, if you’re grossing $100K each year, you should have at least $200K in savings accounts, retirement plans, and other investments. 

It’s OK if you don’t have at least $200K put away. You’re still at least 20 years away from retirement, which gives you enough time to focus on building wealth.


40 year old woman

9 ways to build wealth in your 40s

Here are 9 actionable ways to build wealth in your 40s that you can put into practice right away.

1. Increase your mortgage payments

If you can refinance your existing mortgage at a lower interest rate, consider acting sooner rather than later. Rates are beginning to rise from historic lows, and no one knows what the future will bring. 

On the other hand, if refinancing doesn’t make financial sense, you can increase the size of your monthly mortgage payment and have the extra money credited toward principal reduction or an additional payment. 

To illustrate, assume you purchased a $300,000 home today with a 30-year fixed-rate mortgage. If you added just $100 more each month to your mortgage payments, the loan would be paid off nearly 4 years early. 

That’s a good statistic to know, because retiring while still owing money on a home generally isn’t a good idea. Because your monthly income in retirement will usually be lower than during your working years, it’s best not to have the burden of mortgage debt hanging over your head.

2. Pay off debt now

Speaking of debt, your 40s is also the time to ruthlessly pay off other debts like high-interest credit cards, lingering student loan balances, or personal loans. Real estate investors use something called the “snowball” strategy, which is a method used to reinvest rental income to grow a rental property portfolio.

To use the snowball strategy to pay off debt, begin by allocating a certain amount of cash each month toward debt reduction. Focus on the lowest dollar amount of debt until the balance is paid off. Then, divert that cash, plus the payment you would have normally made on the loan that’s paid off, and use that combined cash to pay off the debt with the next lowest balance until you’re completely debt free.

3. Cut back on expenses

Your 40s are usually your peak earning years, and you’ve worked hard to get where you are. It can be tempting to pat yourself on the back by purchasing another car, buying a bigger home, or taking a once-in-a-lifetime vacation. 

However, bigger paychecks provide the ideal opportunity to rein in your lifestyle expenses and accelerate your savings goals, especially if you don’t have a big nest egg saved. Use personal finance software to analyze your current expenses and learn where you could cut back on spending. 

Once you’ve freed up some extra cash for savings, reinvest those funds to reduce the risk of running out of money in your golden years.

4. Maximize retirement plan contributions

Retirement is about 20 years away, assuming you plan on retiring at the age of 65. Use your remaining working years wisely by maxing out your retirement plan contributions and employer matches. 

Until you begin making withdrawals, income generated in retirement accounts is tax free, which helps your retirement savings to grow exponentially. You can also make extra contributions to a personal individual retirement account (IRA) or Roth IRA, but consulta financial advisor first to make sure you’re following Internal Revenue Service (IRS) guidelines. 

5. Diversify your investment portfolio

Many people in their 40s have an investment portfolio with a large percentage of high-tech growth stocks. Over the years, the share prices of stocks like Amazon and Facebook have done exceptionally well, but high-growth stocks can move down as well as up.

If you make an investment mistake in your 30s, you still have several decades to recover any lost capital. But when you’re in your 40s and nearing retirement, it may make good financial sense to ensure that your investment portfolio is adequately diversified.

Diversifying a stock portfolio is about having a balance of securities within various categories, such as small- and large-cap companies, different economic sectors, and stocks with low correlations to the overall market, such as real estate investment trusts (REITs). 

Some REITs are procyclical, which means they do well when the broad stock market does well, while others are countercyclical and tend to do well even if overall stock market returns are down. By law, REITs are required to pay out 90% of their net income as dividends to shareholders, so owning a REIT may be one good way to generate some extra recurring income.

6. Focus on multiple income streams

Creating multiple income streams in your 40s can be an excellent financial move because you have extra income over the next 20 years or so to direct toward savings, retirement, and reinvesting in more income-producing assets. One of the best things about having extra income streams is that the cash could continue to flow well after you’ve retired.

One of the ways that many people in their 40s generate multiple income streams is by investing in single-family rental (SFR) homes. Investors make money from recurring rental income, gain equity when home values appreciate, and save on taxes by using a variety of deductions to reduce taxable net income. 

In many cases, the monthly rent collected from a tenant more than covers operating expenses and ownership costs, such as property management, repairs and maintenance, property taxes and insurance, and the monthly mortgage payment. 

You can also own SFR property in a retirement account by converting an existing plan into a self-directed IRA (SDIRA) for real estate. Income and profits kept in the retirement account grow tax free until you begin making withdrawals.

7. Maintain an emergency fund

Unexpected expenses like medical bills or layoffs can occur at any time. 

Maintaining an emergency fund protects against life’s curveballs, and it’s more important than ever during your peak earning years. Many experts suggest having between 3 and 6 months of living expenses saved in an emergency fund, although some think having savings of up to 12 months is ideal.

8. Create an estate plan

Your 40s are a good time to think about how to protect and pass on wealth. If you haven’t done so, you may wish to speak with a financial advisor to plan your estate and draw up a will. 

Another way to protect your assets and family is by purchasing insurance. Your beneficiaries can use life insurance benefits to pay for living expenses and pay off debts and funeral expenses. Disability insurance provides an income if you’re no longer able to work and serves as a safety net for yourself and your loved ones.

9. Downsize your primary residence

Once children have left home, some people in their late 40s downsize their primary residence and move to a smaller home with less square footage. You could take advantage of a hot housing market and sell, or retain your primary residence and turn it into a rental. 

There are a number of potential benefits of turning your primary residence into an investment property. You can deduct operating expenses and depreciation from your taxes and enjoy an additional stream of rental income that could last well into retirement


Final thoughts

If you’re in your 40s and think you won’t have enough money for retirement, know that it’s never too late. You’ve got at least 20 years to take control of your finances by reducing expenses, diverting cash flow into savings, and creating multiple cash-flowing income streams.


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This article, and the Roofstock Blog in general, is intended for informational and educational purposes only, and is not investment, tax, financial planning, legal, or real estate advice. Roofstock is not your advisor or agent. Please consult your own experts for advice in these areas. Although Roofstock provides information it believes to be accurate, Roofstock makes no representations or warranties about the accuracy or completeness of the information contained on this blog.
Jeff Rohde


Jeff Rohde

Jeff has over 25 years of experience in all segments of the real estate industry including investing, brokerage, residential, commercial, and property management. While his real estate business runs on autopilot, he writes articles to help other investors grow and manage their real estate portfolios.

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