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No savings at 40? It’s never too late to invest so you can retire rich

Turning 40 is a milestone that people either dread or embrace. Like many of the big birthdays, feelings around the number can make it a much bigger deal than it should be.

The end of an era, or the beginning of a new chapter, whichever way you look at it, life goes on. So if you’ve recently turned 40 or are going to do so soon, then money may well be on your mind.

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Traditionally, most people had a family, mortgage, career and more by the age of 40. Times change and this is no longer the case for many. One thing they also had was savings or a generous company pension plan. But if you’ve reached 40 with no retirement savings to speak of, you’re not alone. And with a little discipline, patience and forward planning you can still achieve a prosperous future.

Think of it this way, if you’re aiming to retire at 67, then you still have 27 years of working life ahead of you. That’s plenty of time for investments to accrue a decent return.

Even with a relatively modest 5% average annual return, you could double your money in 10 years thanks to the power of compounding.

Compound interest can generate considerable wealth over the long term but the amount depends on how much you can afford to invest, the interest rate you enjoy and the time you can leave it.

It’s not for the privileged few

Investing is not an exclusive club for the wealthy. Yes, hedge funds are for the moneyed elite, but for ordinary citizens, there are plenty of investment options available too. Index funds, bonds, Stocks and Shares ISAs and exchange-traded-funds (ETFs) are all affordable and easy ways to put your money to work for you. You can contribute to a Stocks and Shares ISA with as little as £25 a month and enjoy all your gains from it tax-free.

The FTSE 100 index fluctuates in value, but on average over the past 10 years, it has returned over 7%. The FTSE 250 has returned over 11% and some ETF’s have done even better. I like the stock market for wealth generation and I’m sure you will too. 

Your appetite for risk is also a factor to consider because investing correlates risk and reward. The more risk you take, the greater the reward you may realise. 

Time to take control

That said, I prefer Warren Buffett’s approach to investing, which is to buy and hold for the long term and not take unnecessary risk. As powerful as compounding can be, it’s important not to be greedy. I don’t think the potential losses are worth the risk. But with your 27-year timeframe, there’s plenty of time to turn your modest savings into a sizeable pension pot.

For instance, if you start with £1k and save £750 a month, increasing your savings by inflation every year, you could have a pot worth £848k after 27 years if the return rate is that fairly modest 7%.

Many people in their 40s appear to be happier than they’ve ever been. It can be a liberating age with much to look forward to. With a simple investment plan in place, your future finances can be much happier too.

You can then celebrate that you’ve had the foresight to do something positive on the road to granting yourself a shot at a richer future.

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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.