When you reach 40, you are halfway between entering the workforce and retirement. While your income and stage in life may make you feel quite comfortable, as you get older and move closer to retirement age, it’s harder to undo financial mistakes.

Therefore, checking your financial progress and making any necessary course corrections at this critical age is crucial.

Here are some of the financial checkpoints:

Check your financial progress toward retirement

If you have yet to start saving for retirement, it’s time to do it. With 15-20 years in hand, you could still do the ‘catching up’, and achieve financial freedom by the time you retire.

If you are already saving for retirement, it’s time to lean back and check if you are on track. The traditional rule of thumb is to keep at least 25 times the annual family expenses at retirement.

Out calculations suggest that by the age of 40-45, you should have a portfolio worth at least 5-10 times that of the inflation-adjusted annual expenses (see graph). However, it also depends on the extent of equity in your investment portfolio. For example, if your portfolio is 100% into equities, your threshold could be between 5 and 8 times. And if partially invested in equities (say 60%), you need to have a portfolio that is 7-10 times of annual expenses at the time of retirement.

Since retirement is relatively far away for you, there is room to tweak portfolio risk. For example, if you fall short of your target, increase allocation to equities or save more to get there.

Equities have the best potential in terms of returns among all the asset classes and hence can take you to your goal faster or with lesser SIP investment, while a long-term orientation helps unleash the power of compounding.

Check your Net worth

Calculate your net worth by subtracting all your debt and liabilities from total assets.

What are your assets?

Cash – in the form of notes, savings accounts, liquid funds, and others

Investments – in mutual funds, fixed deposits, PPF, bonds, stocks, etc

Property – Land, houses, cars, boats, etc

Valuables  – Jewellery, art, collectibles, etc

What about liabilities?

·  Credit card debt

·  Mortgage outstanding

·  Taxes owed

Ideally, your asset should outweigh your liabilities. Unfortunately, your net worth could even be negative if you have taken more loans than you should have.

Taking this further, subtract all expenses from your annual income to check if you add to your net worth each year. Knowing your net worth gives an inkling of your past financial decisions and if it is in the right direction.

Be risk aware

If an earning member passes away prematurely, there is a loss of income. On the other hand, if the earning member had not passed away, the family would have received a monthly salary, which might have grown yearly until his or her retirement. And part of that salary would have been spent towards household expenses while the rest invested towards various financial goals like retirement etc.

One has to systematically estimate the future income loss to family in case of the death of an earning member and accordingly update their term life cover periodically.

You might not have a health-related expense now. But it can change in the future. So, ensure your family health cover can manage any unexpected medical expenses. 

Emergency fund

As a youngster, you might have thought it unimportant to have a dedicated emergency fund. 

But responsibilities increase when you have a family to support. In addition, today’s job and economic situation are uncertain.

If one loses a job midway, his investments will be affected temporarily. It implies a delay and compromises financial goals.

So, ensure you have enough savings for at least 5-6 months. An emergency fund can help you tackle unforeseen economic challenges and peace of mind.

New Realities

While calculating the risk need of an investor, one assesses the market environment. It includes looking at current and historical averages of equity, fixed income and cash/cash equivalent returns, and past and projected inflation.

Ideally, if there is a fundamental alteration in the capital market return expectations, you should consider it by looking at associated trade-offs. For instance, if long-term market return expectations are lesser than before, you might have to court higher portfolio risk to reach the same goal.


In your 40s, you are halfway on the road to retirement. Check all the boxes of recommendations mentioned above to ensure you are in good shape in the future.