Saving for retirement in your 40s often feels more pressing. For many people, this decade combines higher earnings with competing financial priorities such as mortgages, children, and long-term lifestyle planning.
While retirement may still seem distant, the decisions you make in your 40s can have a meaningful impact on your financial security later in life.
This Moneyfarm guide explains how to approach retirement saving in your 40s, which priorities to consider, and how current UK pension and tax rules affect your choices.
At a glance
- Your 40s are typically peak earning years, but also come with significant financial commitments
- Pension tax relief remains one of the most effective ways to boost long-term retirement savings
- The annual pension allowance is £60,000 for the 2025/26 tax year, with tapering for high earners
- The minimum pension access age is 55, rising to 57 from April 2028
- ISAs can complement pensions by adding flexibility and tax-free withdrawals
Tips for saving in your 40s
- Prioritise paying off any expensive debt and building up your three month cash buffer
- Take stock or what you’ve got, where you want to be, and whether you’re on track
- Adjust your pension contributions, making the most of any pay rises and bonuses
- Invest in a personal pension and ensure your investments are suited to your investor profile
- Don’t forget to claim back your higher or additional tax relief
- Transfer your pension into one place to keep on top of your savings
- Make the most of your ISA allowance
How to save for retirement in your 40s
Your 40s are often a decade of financial trade-offs. While retirement may still feel some way off, this is typically a period of higher earnings combined with growing responsibilities.
Taking a structured approach to saving can help balance today’s commitments with the need to build long-term financial security.
Competing priorities
You’re probably still paying off your mortgage and have a young family that needs supporting financially. Big chunks of your after-tax earnings might be earmarked for private education, tutoring or sports clubs.
Paying off debts should always be a priority, especially expensive loans. The quicker you can pay your mortgage off, the more you can put into your pension at a later date. It also means that you avoid carrying mortgage payments into retirement which can be a big financial burden.
Then look to save up at least three months of your outgoings, you never know if you or your partner might unexpectedly become unemployed, or ill.
Once you’ve got this security, you can make your pension savings work harder for you on the financial markets, to protect it from inflation and grow it for your dream retirement.
At this stage of life, inflation becomes a very important consideration, as failing to grow pension savings above rising living costs can significantly reduce future purchasing power.
How a personal pension can help
The UK pension system provides tax incentives designed to encourage long-term saving. Most people saving for retirement in their 40s will be contributing to a defined contribution pension, such as a workplace pension or a personal pension.
Pension tax relief explained
Pension contributions benefit from tax relief based on your income tax band:
- Basic-rate taxpayers receive 20% tax relief
- Higher-rate taxpayers are entitled to 40% relief
- Additional-rate taxpayers can receive up to 45% relief
Basic-rate tax relief is usually added automatically by the pension provider. Higher and additional-rate relief must typically be claimed through HMRC, often via self-assessment.
Example: a basic-rate taxpayer pays £8,000 net to receive a £10,000 gross pension contribution. A higher-rate taxpayer pays £6,000 net for the same £10,000 contribution, once all relief is accounted for.
Annual allowance and limits
For the 2025/26 tax year, the annual allowance for pension contributions is £60,000 or 100% of your earnings, whichever is lower. This includes personal and employer contributions.
For higher earners, the allowance may be reduced through tapering, with a minimum allowance of £10,000.
Understanding these limits is particularly important in your 40s, when earnings and contribution levels often increase.
When and how you can access your pension
Most people can currently access their pension from age 55. However, from 6 April 2028, the normal minimum pension age is scheduled to rise to 57, unless you have a protected pension age.
Up to 25% of your pension savings can usually be taken tax free, subject to the Lump Sum Allowance, which is currently capped at £268,275. Any withdrawals beyond this are taxed as income.
After you’ve taken your 25% tax free lump-sum, your pension withdrawals will be taxed in line with your income tax bracket. If you decide not to take your tax-free lump-sum, you’ll get 25% of each withdrawal tax free and pay income tax on the remainder.
How much income you may need in retirement
Estimating how much income you will need is a key part of retirement planning. While individual needs vary, widely used benchmarks and this pension calculator can provide a useful starting point.
According to the Pensions and Lifetime Savings Association Retirement Living Standards for 2025:
- A comfortable retirement requires around £43,900 per year for a single person
- For a couple, this rises to approximately £60,600 per year
These figures exclude housing costs and are intended as broad guides rather than targets. Your actual needs will depend on your lifestyle, location, and personal circumstances.
Investment strategy in your 40s
With potentially two or three decades until retirement, many people in their 40s can still afford to take some investment risk in pursuit of long-term growth.
By understanding what you’re investing for, your time horizon and financial background, you can build an investor profile that will include your tolerance to risk. Your tolerance to risk should shape exactly what you invest in.
The more risk you can take with your investments, the higher your scope for returns, but also the further your investments have to fall.
Although guidance varies, most advisers suggest that savers should look to put around 10-15% of their monthly income into their pension savings.
Example: a 42-year-old earning £55,000 who increases pension contributions from 8% to 12% (£183 to £275 per month) and invests in a growth-oriented portfolio could add over £120,000 to their pension pot by age 67, assuming 5% annual returns.
The amount you need to set aside each month will therefore vary significantly from person to person. Starting earlier generally reduces the monthly effort required, while delaying contributions often means needing to save a higher proportion of income later on.
For this reason, reviewing your pension regularly and adjusting contributions as your circumstances change can help keep your retirement plans on track. Regular reviews are particularly important in your 40s, as career progression, family costs, and income changes can quickly alter what you need to save.
Our free Pension Drawdown Service helps you make confident, stress free decisions to stay in control of your retirement income.
You can use Moneyfarm’s tool to calculate and help you work out how much you need to be saving a month to get the income you want in retirement, or start one of Moneyfarm’s regular investment plans.
Is it too late to save for retirement at 40?
Starting to save for retirement in your 40s is not too late, but it does require a more focused approach.
A common mistake in this decade is underestimating how quickly time to retirement can pass, which can delay necessary increases in contributions.
With fewer years left before retirement, contributions typically need to be higher than they would have been if you had started earlier. That said, many people reach their highest earning years in their 40s, which can make it easier to increase pension contributions.
One of the advantages of starting sooner rather than later is the effect of compounding. When investment returns are reinvested, they can generate further growth over time. While compounding works best over long periods, it can still play an important role even if you begin saving later in your working life.
It’s never too late to start saving for your pension. Simple changes to your personal budgeting can make all the difference, and ensure you achieve the financial confidence and security you deserve.
How to invest a lump sum into your pension
Receiving a lump sum, for example through an inheritance or a one-off windfall, can present an opportunity to strengthen your retirement savings. Before contributing, it is important to understand the rules around pension tax relief and contribution limits.
For the 2025/26 tax year, pension contributions eligible for tax relief are capped at £60,000, or 100% of your relevant earnings, whichever is lower. This total includes both personal and employer contributions. For higher earners, the allowance may be reduced through tapering.
After maximising pension contributions, some people choose to use their annual ISA allowance of £20,000. ISAs do not offer tax relief on contributions, but any investment growth and withdrawals are generally tax free, making them a flexible complement to pension saving.
ISAs are more flexible than pensions, and your withdrawals will be tax-free although you don’t receive any tax relief on your investments.
You may want to keep the remainder of your money in a cash saving account until the next financial year, or invest in a general investment account.
Making sure you plan for retirement in the best way for you and your family can be difficult. If you need any help, talk to an independent financial adviser and be sure to read our pension guide.
Key takeaways
- Your 40s are a critical decade for retirement planning due to higher earnings and time still available for growth
- Pension tax relief can significantly enhance the value of long-term contributions
- The annual pension allowance is £60,000 for 2025/26, with tapering for higher earners
- Retirement income needs are higher than many expect, especially for a comfortable lifestyle
- ISAs can complement pensions by providing tax-free flexibility
- Regular reviews can help keep your retirement strategy on track
FAQs
No. While starting earlier makes saving easier, your 40s still offer time for contributions to grow. Higher earnings in this decade can help accelerate progress.
A common guideline is 10 to 15% of income, but the right amount depends on existing savings, retirement goals, and expected retirement age.
Pensions are generally more tax efficient due to tax relief, while ISAs offer greater flexibility. Many people benefit from using both.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
