Retirement Planning at 40: Where You Stand and What to Do About It

Forty tends to be the age where retirement stops feeling abstract and starts feeling real. You can see it on the horizon. You might have a rough number in your head, or a vague anxiety that the number in your head is not quite right. This is the decade to get specific.

The other thing that is true at 40 is that you still have enough runway to make a real difference. If you are behind, you are not out. If you are on track, this is the time to optimize rather than just save more. Either way, the right move is the same: figure out exactly where you are and build a clear path forward.

What Does "On Track" Actually Mean at 40?

A commonly cited benchmark is three times your annual income saved by age 40. So if you earn $100,000, you would ideally have $300,000 in savings and investments across RRSP, TFSA, pensions, and non-registered accounts. This is a rough rule of thumb, not a verdict.

What matters more than hitting an arbitrary number is understanding the gap between what you have, what you will have at retirement, and what you will need. That analysis requires knowing your expected CPP entitlement, whether you have a pension, what age you want to retire, and what kind of income you will need in retirement. You cannot answer the "am I on track" question without those inputs.

The Next 20 to 25 Years Are Your Most Powerful

If you retire at 62 to 65, you have 20 to 25 years of accumulation left at 40. That is a long time. The compounding math is still strongly in your favour. A $50,000 RRSP contribution at 40 is worth roughly $190,000 at 65 at a 7% return. You are not too late.

What changes in your 40s is that the stakes of each decision are higher. Choosing the wrong savings rate, taking CPP at the wrong time, or making poor investment decisions now has a larger dollar impact than the same mistake in your 20s.

Maximize the RRSP in High-Income Years

Many people reach peak earnings in their late 40s and early 50s. If you are in that trajectory, the 40s are often when RRSP contributions deliver the biggest tax deduction. Contributing to your RRSP when you are in a 43% to 53% marginal bracket and withdrawing in retirement when you are in a 20% to 30% bracket is the core of the RRSP value proposition. Do not leave RRSP room sitting unused if your income is high.

Start Thinking About Debt Elimination Before Retirement

Carrying a mortgage, car loans, or lines of credit into retirement is a plan that requires higher income in retirement than most people project. The goal for most people should be to retire debt-free, or very close to it. That requires knowing roughly when your mortgage will be paid off and whether your current amortization gets you there before retirement. If not, you can accelerate now while your income is at its peak.

Review Your Insurance Coverage

Disability insurance becomes more important in your 40s, not less. You likely have more to protect and more years of earning left. Group disability coverage through an employer often replaces only 60% to 70% of income and may have definitions that become more restrictive over time. Review your coverage and understand exactly what you have.

Life insurance needs change too. If your mortgage is materially paid down and your children are older, you may need less than you did at 35. Or you may need more if your income and obligations have grown. A quick review costs nothing and prevents either overpaying or being underprotected.

Get a Financial Plan Done

This is the decade where a comprehensive financial plan pays for itself most clearly. You have enough history to model accurately and enough runway to act on what you find. A good plan tells you your projected retirement income at different retirement ages, identifies whether your savings rate is sufficient, surfaces gaps in insurance, and gives you a clear set of actions. Not a product pitch. A plan.

Freehold Financial Planning is an advice-only, fee-for-service financial planning practice based in Windsor, Ontario, serving clients across Canada. This article is for educational purposes and does not constitute personalized financial advice.