Retirement planning in your 40s

Rear view of embraced senior couple looking at their family in nature.

Retirement planning in your 40s


  • Your 40s marks a turning point in your life whereby you have reached your peak earning potential, while you are half way between entering the workforce and reaching retirement.
  • If life has gotten in the way and financial responsibilities such as paying your home loan and saving for your children’s education have become a priority, you may have neglected putting money aside for your retirement.
  • Retirement planning at 40 is possible, but you will have to play catch-up. Start off by determining when you would like to retire so that you can better gauge the timeframe at your disposal for saving and investing.
  • Next, you must set realistic goals that include establishing how much money you will need to save so that you can reach your financial objectives once you reach retirement. Part of doing so may also involve making financial sacrifices such as reducing your monthly budget and overall expenses.
  • Saving is a good way of growing your pension pot, however, investing can give your retirement nest egg a much-needed boost since in this manner you can maximise your returns over-time.
  • With time still on your side, you may want to consider taking on some risk by sticking to investments that have a good record of producing returns but offer a good chance of beating inflation. Some options you may want to consider include stocks, bonds and mutual funds.
  • If you feel that the state pension is not sufficient to maintain your current lifestyle, you may want to supplement it with a private pension scheme which can see you benefit from up to €500 per year in tax credit. In addition, the government announced during the 2021 budget that the tax-exempt threshold will be increased further from €2,000 to €3,000, which can see you benefit from €750 tax credit annually.
  • CC’s financial advisors can assist you to plan more effectively, create a tailored, comprehensive roadmap for your retirement and select the right investment mix that will make your money grow.


Life begins at 40 or so they say. At this stage you are probably at the midpoint of your career when your income is higher to that you earned a decade ago, while you are heading towards your peak earning years. You are also halfway between entering the workforce and reaching retirement. But as you finish unwrapping the last of your birthday presents, you get hit by the realisation that your time horizon has been shrinking and you have been lagging with your savings, while you are yet to establish a retirement plan.

And while the truth is that the longer you delay saving and investing towards your retirement, the more you will have to put away each month, there is still plenty of time to make up for lost ground. How you invest and save for retirement in your 40s can strongly impact your future assets.

Have a look at what you should be doing now to kick start your pension plan and get a better chance at leading a carefree retirement.



Determine your retirement age

Do you see yourself retiring early at age 55 or at 65? Perhaps you would like to work on a part-time basis or have a side gig even once you are well past your retirement age? Deciding when you would like to retire from your professional life should always be your first step since doing so will give you a clearer picture as to how much time you have left till your reach that stage in your life. But be realistic. If you are 45 years old and have little to no savings, it is highly unlikely that you will be able to retire at age 50.
Let us assume that you would like to retire with €200,000 in 25 years’ time. At 40 years old and just having started to save up, you would need to invest close to €670 a month. Delay retirement until age 67 and you may be able to reduce your monthly investing amount slightly.

Are you considering not drafting a retirement plan thinking that you might not need one? Have a look at why retirement planning is important.


Set realistic goals

Saving for your retirement when you have other financial responsibilities like home and car loans and all things child-related is not easy, however, putting this off until even later means that you are also pushing saving and investing further into the next decade which might see you having to take on drastic measures to slash your expenses and overall cost of living, while you may have to take on more risk than you might be comfortable with at an even later stage in your life.

If you are just about to embark on your retirement savings programme, you will need to play catch-up with your monthly contributions. To do so, you may have to save an extra amount each month. Yet, before you even set off to decide how much money you will need to start saving, you must set your goals. Having goals will make reaching your objectives easier so do not refrain from establishing a financial plan. As a general rule of thumb, at 40 you should increase your savings rate by 15 to 20%. If doing so sounds like a daunting undertaking, remember that you do not need to earn your target amount at your 9-5 job, but you can reach this through your investments. The longer your money is invested, the more it is likely to grow since you will be taking advantage of compound interest – when interest is added to the principal sum you have invested, essentially reinvesting the interest rather than paying it out.

An easy way to forecast how much money you will need to save is to use our retirement planning calculator. The calculator will indicate what your future salary may be when you reach retirement and how much your current savings will provide a monthly retirement income, while it will estimate what your future state pension may be and how much you need to save each year so that you can reach your targets.

In addition, you might need to make some financial sacrifices to build an adequate cushion to rely on later on in life. This could mean that you may need to limit things like expensive holidays, reducing your budget to its bare bones and only spending on essentials, finding other ways to entertain yourself at home as opposed to dining out every weekend or forego picking up expensive new hobbies. Although a financial sacrifice now, it may prevent you from having to make dramatic lifestyle shifts once you retire.


Bonus tip:

It is important to factor in other expenses and potential costs that you may either have in the short-term or in the long-term once retired. For instance, apart from your typical monthly expenses, such as utility bills and house loan, you might have expenses like paying for your children’s education, helping them with a down payment on their first property or their wedding down the line. As you reach retirement, you may have to fork out funds for healthcare should you be struck by an illness. As a result, do consider these additional expenses when planning how much money you need to set aside.



Making the right investment choices

Whereas putting some money aside every month for your retirement is a good way of growing your pension pot, there are far better opportunities to increase the pace at which you contribute to your retirement nest egg. Having said that, it’s important to invest appropriately for your age, while your investment approach should age with you. At 40, time is still on your side, which means that you can absorb changes in the market, while you can afford to focus on more aggressive growth stocks as opposed to slower-growing assets like bonds. However, avoid making the mistake of taking on additional risk to make up for you lost time. Although your potential returns are higher, so is the risk and with it you may be exposing yourself to potential loss. Remember, that your risk tolerance should always align with your age. For instance, when you are young and have several decades before retirement, you can afford to invest in assets like stocks since you have sufficient time at your disposal to recover from any market downturns, however, as you edge closer to your retirement, your aim should be to preserve your capital, so switching some of your investments to more stable and low-earning funds might be a better-suited option at this point in your life.

Bearing in mind that in your 40s you are at the midpoint of your career, now is the time to seriously build your portfolio. Your aim should be to stick to investments that have a good record of producing returns but offer the optimal chance of beating inflation.
Here are some options you might want to consider:

  • Stocks: With close to two decades left until your retirement, you can afford to invest in the stock market since it is one of the best ways to build wealth in a relatively short period of time despite being considered as one of the most volatile asset classes.
  • Bonds: From providing a predictable income stream to offsetting exposure to more volatile stock holdings, bonds are a good way of preserving capital while investing, since you may get back your entire capital.
  • Mutual funds: These pool money together from a group of investors and invest that capital into different securities. As a result, mutual funds offer diversified holdings, while they are a good way to avoid some of the complicated decision-making involved when investing in stocks for example.

One more thing you need to decide is your asset allocation. How much you should invest in stocks versus bonds will largely depend on your objectives and what you would like to achieve. For instance, at age 40 your asset allocation may look something like this – 60 to 70% stocks and 30 to 40% bonds. Another way of determining your asset allocation is to use the classic principle governing age and asset allocation which consists of:

  • Deducting your age from 100 or 110 if you have a higher risk capacity. The answer will give you the percentage you should hold in stock investments.
  • Holding the remainder in bonds and other Investissements that are more stable.


Rebalancing your portfolio

While asset allocation and creating a diversified portfolio are crucial, if you already have a portfolio and have held it for a number of years, your 40s is the ideal time to reassess it. Rebalancing may consist of strategically selling certain investments and buying others in order to maintain an appropriate asset allocation over time or adding funds and investing them in a different manner. Doing so is important so as to balance the risk you are taking with the long-term return potential of your investments. Once you take into consideration your financial goals and where you would like to be at retirement age, you can then gauge whether you are on track for the lifestyle you want and if not, you will have a clearer understanding of what you need to achieve this.



Should you opt for a private pension scheme?

If you’ve given your pension some thought, you will quickly realise that the measly government retirement pension you will get at around your 65th birthday will not stretch too far, let alone help you maintain your current lifestyle and enjoy your golden years to the max. The state pension provides a basic standard of living financed through your Social Security contributions, so at best you may receive approximately €230 per week depending on your eligibility and the contributory retirement category you qualify for. Will that be enough to cover your monthly expenses and allow for a little extra on the side?

One way of making a difference to your pension is to take on a private pension scheme. Specifically designed to help you amass those necessary provisions that will serve as a helping hand to maintain your standard of living in the later years of your life, a private pension scheme will give your pension pot that necessary boost to grow at an unrivalled rate yet with the added security from a diversified nature of investments.

Not sure how to go about it? Offering support to clients throughout the entire retirement journey, CC’s financial advisors can help you plan for retirement regardless at what stage you are. Our advisors will guide you through asset allocation and will ensure that your portfolio is diversified in order to make the most of compound interest, while avert you from losing all your money should one asset class goes south.

CC offers the Lifetime Private Pension Scheme and the Lifetime Occupational Pension Scheme to clients. Both enable your pension pot to grow at an unparalleled rate with added security from a diversified nature of investments, offering a steady income at retirement and peace of mind for the future of your finances. In addition, thanks to new legislation which introduced incentives for individuals to save into a personal pension plan, you can withdraw up to 30% of your sum tax-free at retirement, while you can benefit from up to €500 per year in tax credit.

Here are some of the benefits of taking on a private pension scheme:

  • Tax rebate: As long as you are of legal age, a tax resident in Malta and domiciled on the island, you are eligible for a tax rebate equivalent to 25% with a maximum total of €500.
  • 30% tax free lump sum: You are also eligible to take a 30% tax free lump sum, with the remaining balance serving as a source of income throughout your retirement.
  • Tax efficient and low-cost solution: Providing tax-free growth throughout the lifetime of your pension, a private pension scheme is also offered at competitive pricing on the market, while your pot will be managed conservatively by an experienced professional.
  • Save as much as you want: You are at liberty to decide that amount that you would like to contribute to your private pension scheme, however, if you only contribute the maximum allowance per annum, you will be able to take full advantage of the tax rebate.
  • Pass on your pension pot to your loved ones: Bearing in mind that our private pension scheme is structured under a trust management, should the worst happen to you, your beneficiaries can benefit from your pension pot right away and outside of the inheritance process.


What’s more, the government has recently announced during the 2021 budget that the tax-exempt threshold will be increased from €2,000 to €3,000. This means that a 25% rebate will amount to €750 annually.

Although you may have left the previous 20 or so years of your career slip by without getting serious about your retirement savings, that does not mean that you should carry suit in the next 20 years. By making adjustments to your habits, as well as drafting and following your retirement plan, you will be well on your way to a better future.

Speak to an experienced advisor who can assist you to plan more effectively, create a tailored, comprehensive roadmap for your retirement, help you select the right investment mix that will make your money grow, as well as take care of your finances on your behalf.



The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

Calamatta Cuschieri Investment Services Ltd is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.