It’s never too late to start investing in your future. However, you are at a pivotal point in your life during your 30s. There’s probably a lot going on in your life, including your career, relationships, and perhaps even your family.
As crucial as these commitments are, it’s also vital to prioritize your financial future. This could explain why 73% of working adults started taking serious consideration to retirement in their 30s, according to the Retirement Readiness survey by Thrivent.
At the same time, saving for retirement in your 30s can be challenging. Besides paying back student loans, you have a mortgage and a family to support. Despite this, you should prioritize it, especially as your salary rises.
The good news is that you can significantly increase your retirement savings by taking a systematic approach and making consistent efforts. If you still do not think that is feasible, let’s talk about how you can save for retirement in your 30s.
The Power of Compound Interest
Before we proceed, let’s examine compound interest, one of the most powerful retirement-saving tools. Basically, it’s the interest earned on your initial investment plus the interest earned on that interest. The earlier you begin saving, the longer your money has to grow exponentially.
To illustrate this, let’s look at a hypothetical situation. Let’s say there are two individuals, Alice and Bob. At age 25, Alice starts saving $5,000 a year and continues to do so until she retires at 65. Similarly, Bob begins saving the same amount at age 30 and retires at age 65.
Considering a 7% annual return, Alice will have over a million dollars when it’s time to retire. However, compound interest will still allow Bob to accumulate a substantial sum, somewhere over $700,00.
While it’s best to start early, compounding can still work wonders even if you don’t start saving at 30.
Overcoming the Late Start
Again, starting earlier is advantageous. But, several strategies are used to compensate for a later start.
Getting over the “I’m behind” mentality.
It is natural to feel overwhelmed when you realize you haven’t started saving as early as you would like. Nevertheless, dwelling on the past won’t affect your financial future. Instead, think about what you can do right now.
Remember, progress is made with every step you take. Celebrating small victories and avoiding comparing yourself to others are also important. After all, each individual’s financial situation is unique.
Invest in your financial future by setting a budget.
Budgeting can help you save for retirement, manage your day-to-day expenses effortlessly, and build a strong retirement nest egg. When you track your spending, you’ll gain valuable insight into where your money goes and discover ways to cut expenses.
Keep in mind that budgeting does not mean you have to give up everything you enjoy. Instead, plan your spending based on things you and your family value, such as dining out, shopping, and extracurricular activities. If you include these expenses in your plan, you will likely stick to it.
In addition, a budget can help you avoid lifestyle creep — aka, spending that increases with income.
Develop a comprehensive retirement plan.
A retirement plan tailored to your requirements can help you maximize your savings. Specifically, this involves:
- Setting retirement goals. How do you envision your lifestyle? What is the amount of income you will need?
- Calculating your savings needs. For an estimate of how much you need to save for retirement, use an online retirement calculator.
- Diversifying your investments. We will discuss this in more detail shortly. To put it simply, spread your investments across different asset classes to manage risk
- Regularly reviewing and adjusting. To make necessary adjustments to your financial plan, revisit it periodically.
Maximize your savings potential.
You can develop a tailored savings plan once you have a clear retirement picture. This should include the following:
- Contribute the maximum amount to your employer-sponsored retirement accounts. Take advantage of your employer’s 401(k) plan and contribute as much as possible, especially if your employer matches your contribution. In essence, this is free money. For 2024, employee contributions to the 401(k) plan are limited to $23,000, and employer contributions are limited to $69,000.
- Consider a Roth IRA. Traditional IRAs provide immediate tax benefits, but Roth IRAs may be better for long-term growth. The money you contribute is after-tax, but you can withdraw it tax-free in retirement.
- Automate your savings. Ensure that your retirement accounts are automatically transferred from your checking account. In this way, you avoid spending the money and are sure to contribute consistently.
- Take advantage of a Health Savings Account (HSA). To save for medical expenses, contribute to an HSA if you are eligible. Funds grow tax-free, and contributions are deductible.
- Increase contributions gradually. As your income grows, gradually increase your contributions. As a result, saving becomes easier.
- Avoid withdrawing from your retirement accounts early. Don’t withdraw money from your retirement accounts before you reach retirement age. In addition to avoiding penalties and taxes, you will have more time to grow your money.
Invest in a diverse portfolio of stocks.
Saving money is important, but smart investing can be even more important. Using an aggressive investment strategy during your 30s can significantly boost long-term wealth.
As such, consider allocating a substantial portion of your portfolio to stocks, especially growth stocks, which may provide high returns. You might also consider investing in real estate, high-yield bonds, and mutual funds that focus on emerging markets. Diversifying investment types allows risk to be balanced while growth can be maximized.
Ultimately, you should allocate 80-90% of your retirement assets to a diversified mix of stocks to maximize your earnings potential. Although market fluctuations are normal, young investors have the advantage of time to ride out downturns and reap long-term rewards.
Don’t rely too heavily on company stock.
To maintain a balanced investment portfolio, you must ensure it is well diversified. As such, don’t concentrate too much wealth on your employer’s stock. Experts recommend keeping your company stock investments under 10%. If you lose your job or the company declines, this will protect your retirement savings.
Be prepared for life’s unexpected turns.
To weather financial storms, you need an emergency fund. Ideally, you should save at least three months’ worth of living expenses. As part of the Secure Act 2.0, employers can attach emergency savings accounts (separate from retirement savings) with employee contributions up to $2,500 starting in 2024. Auto-enrollment is possible for employers, and employees can be enrolled up to 3% of their salaries.
As an added precaution, consider disability and life insurance to protect your family during unforeseen events. Even though unexpected expenses can disrupt your savings plan, remember that every dollar you save leads to a brighter financial future.
When changing jobs, protect your retirement savings.
Job changes shouldn’t derail retirement plans. When switching jobs, don’t cash out your retirement account. Consider rolling your funds over to a new employer-sponsored plan or an IRA for a better chance at saving.
Make sure you don’t waste financial windfalls.
Savings can be boosted significantly by unexpected income, such as tax refunds, bonuses, or an inheritance. Rather than splurging, consider contributing to your retirement fund or emergency fund. If you follow this strategic approach, you can achieve your financial goals more quickly.
Don’t underestimate the power of side hustles.
There’s no denying that extra income can significantly speed up retirement savings. You may want to consider side hustles, freelancing, or renting out unused assets like a spare room on Airbnb. As you earn more money, you can put it toward your retirement goals.
If you need professional advice, don’t hesitate to do so.
If you’re unsure about your retirement plan, you may benefit from consulting a financial advisor. A professional can assess your finances, develop a personalized plan, and make informed decisions about investments, assisting you in making the best financial decisions.
Final Words of Advice: Set Realistic Goals
The key to a successful retirement is to set attainable goals. First, using online retirement calculators, you can estimate how much you’ll need to save for retirement. Also, generally speaking, you should aim to save 15% of your income.
It is important to remember that every dollar saved now will translate into a more comfortable retirement. So, ensure you are investing in your long-term financial security despite the pressures of your 30s.
Remember, now is the time to start, and the rewards will last a lifetime.
FAQs
Why is saving for retirement so important in my 30s?
When you’re in your 30s, you’re a prime candidate for retirement savings. Over time, even small savings can grow a lot, thanks to compound interest. As a bonus, starting early gives you more time to recover from a downturn.
How much should I be saving for retirement in my 30s?
Generally, you should save 10-15% of your income for retirement. However, this figure may vary depending on factors such as your desired retirement lifestyle, current expenses, and income.
What if I have student loan debt or other debts?
Retirement savings should not be neglected entirely despite the importance of paying off high-interest debt. You should contribute modestly to your retirement account while aggressively repaying your student loans.
What investment strategies are suitable for my age?
In general, 30-somethings have a higher tolerance for risk. If you want your investments to be stable and grow, consider a mix of stocks, bonds, and other assets.
How can I stay motivated to save for retirement?
You can visualize your future retirement goals, track your progress, and celebrate your milestones along the way. Consider using retirement calculators to know how much you can save for retirement.
Image Credit: Ivan Samkov; Pexels
