How Much Money Do You Need in Savings at Age 40?

The typical 40-year-old is 15 or more years into their working lifetime, and many people reaching key milestone ages like 40 wonder how they're doing financially. Specifically, many wonder whether they have enough money in savings -- but how much is enough?

Note: It's important to point out that this is separate from retirement savings, which should be held in a tax-advantaged account like a 401(k) or individual retirement account (IRA).

Let's take a closer look at how much cash in the bank a 40-year-old should have.

What are you saving for?

By age 40, a good goal to aim for is six months' worth of your living expenses in a readily accessible savings account. Many experts refer to this as your emergency fund, and the idea is to have enough to get you through a job loss, unforeseen healthcare costs, or pretty much anything else life throws at you.

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In addition to having six months' worth of expenses in emergency savings, it's wise to keep some additional money in a non-emergency savings account. This is to cover costs like higher-than-usual utility bills or small home maintenance expenses.

The point is that these are examples of costs that are unexpected, but aren't exactly financial emergencies. It's important to keep your main emergency savings in a separate place from money that you could use for day-to-day expenses.

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How much do you need in savings?

To be clear, there is nothing wrong with the six-month guideline. Regardless of your specific circumstances, if you have six months' worth of expenses in a savings account that is separate from your retirement savings, you're in pretty good shape to handle the overwhelming majority of unforeseen situations.

However, keep in mind that general rules of thumb don't take your circumstances into account. Specifically, here are some factors to keep in mind when setting your own savings targets.

Family and marital situations

Are you married? It's less likely that both spouses would be unemployed at the same time. And if you have children, be sure to factor six months of their expenses into your goal.

Employment specifics

Do you have excellent job security, or are you new in your role? Do you own your own business? Is your income consistent, or does it change from month to month?

For example, if you've been a public school teacher for 20 years in the same district, your likelihood of an extended period of unemployment is far lower than someone who just started doing freelance consulting work.

Other assets

The main goal of keeping money in savings is to avoid borrowing money or dipping into your retirement accounts when the unexpected happens. But if you have other assets, such as non-retirement investment accounts, a second home, investment properties, or other assets that would be fairly easy to sell, you might not need quite as much emergency savings as someone who doesn't.

This isn't an exhaustive list of considerations, but the point is that general guidelines are just that -- general. It's important to use them as a starting point, but to adapt them to your own life.

The bottom line

The key takeaway is that the answer here isn't an easy one. There isn't a specific number that every 40-year-old should have in savings.

Having said that, I'm a fan of the guidelines described here, which I would call a "customized six-month rule." However, if you're worried about having enough savings, the best course of action is to contact a financial planner who can help evaluate your situation and give a personalized recommendation.