How I Saved $250,000 for Retirement by Age 40

My first financial priority as a college graduate was to build emergency savings. Since I paid for school, most of the money I earned during college went toward my expenses at the time. So I wanted to build up an emergency fund so I'd be protected from things like unplanned bills or job loss.

Because I was focused on building emergency savings and also paying off educational debt, I didn't start funding a retirement account until my mid-20s. But in the course of 15 years, I managed to accumulate a nest egg worth $250,000. And if that's a goal you're willing to commit to, you, too, might end up with a similar balance by the time your 40th birthday arrives.

Slow and steady wins the race

My first few years of retirement savings had me contributing a few thousand dollars a year at most. But as my earnings grew, so too did my contributions.

In my 20s and early 30s, I worked for different companies and participated in their 401(k) plans. Once I went freelance on a full-time basis, I began funding a solo 401(k), which is a 401(k) that you manage yourself. 

The downside of a solo 401(k) is that you don't get to enjoy employer matching contributions, since the whole premise of being able to fund one of these accounts is working for yourself and therefore not having an employer. The upside, though, is that these accounts come with higher contribution limits than regular 401(k)s. 

This year, for example, if you're under 50, the contribution limit for a solo 401(k) is $69,000. However, the amount you're able to put in is limited to a portion of your income, so you may not be able to put in $69,000 even if you earn more than that and can afford to part with that sum of money.

What I did each year between my mid-20s and age 40 was increase my retirement plan contributions as my income rose. Not only that, but I set up automatic transfers so that my retirement account would get funded each month with a preset amount before I got a chance to spend that money. 

That's something I definitely recommend doing if you want to stay on track with your retirement savings. If you have a 401(k) through a job, that's basically how it'll work -- you'll tell your employer how much you wish to contribute and your long-term savings will get funded via payroll deductions. If you have an IRA, you can set up automatic transfers from your checking account to fund that plan, too.

Investing was a big part of the equation

I may have reached $250,000 in retirement savings by age 40. But that doesn't mean I contributed $250,000 to my various accounts. 

In reality, I put in a lot less money than that. The reason I was able to grow my balance to $250,000 was that I invested it fairly aggressively throughout my entire savings window. 

And when I say "aggressively," I mean I put my money into stocks, which I recommend going heavy on if you're at least 10 years away from retirement. If you're closer to retirement age, stocks are still a good idea, though you should also, at that point, be investing in less volatile assets, like bonds.

Over the past 50 years, the stock market's average annual return has been 10%. This means that if you put $650 a month into a retirement account over a 15-year period and your portfolio delivers that same return, you'll have about $250,000 yourself.

I'm not done saving for retirement yet

I'm pretty happy with the progress I've made on the retirement savings front -- especially since I had expenses like college to grapple with that forced me to delay my savings efforts a bit. I also had kids in that 15-year savings window. And when they were super young and needed me for pretty much everything, I worked less and wasn't able to earn as much. So those years, I contributed less toward retirement savings. 

But all told, the average 40-something today has $77,400 saved for retirement, according to Northwestern Mutual. So a balance that's more than three times as high isn't something to scoff at.

Still, I'm not finished saving for retirement. I don't have a specific savings target in mind, but I want to put as much money away as I can to hopefully avoid financial stress down the line.

If you're not sure how much to save for retirement, don't sweat it -- it's a really hard number to nail down. But I suggest coming up with an annual savings goal and automating your contributions to meet it. Keep investing your savings and increasing that goal as your income rises, and you may find yourself in a great position to retire comfortably once that period of life rolls around.