Your 30’s can be a time in your life when everything starts to finally settle down and fall into place. These days it’s pretty common for most young adults to switch jobs a few times, go back to school for a new career, or even take some time for yourself to travel or other interests.
So as we start to find some stability in our lives, one of the things we really start to take more seriously is our finances. And even though we may not have had much to do with money up to this point, saving for retirement at 30 is one of those things we absolutely need to start doing if we want to ever finish working some day.
Am I Too Late If I Start Saving for Retirement at 30?
Not at all! … But you don’t want to wait any longer!
It is true that you would have had a much easier time saving up your money had you started saving for retirement in your 20’s. But with retirement still almost 30 years away, you’ve got more than enough time to save up a sizeable nest egg and enter your golden years with comfort.
For example, let’s say you want to reach one million dollars 30 years from now. If you just invested in a stock market index fund that returned an average of 8 percent per year, that means you’d only need to save $8,827 per month to pull it off.
Regardless of how much you think you’ll need, here are a few simple things you can do in your 30’s (and beyond) to accelerate your retirement savings and get on track.
Max Out Your 401k and Employer Contributions:
If you work at a place that offers a 401k retirement plan, one of the smartest things you can do to boost your savings is to contribute the maximum amount every year. As of 2014, the maximum 401k contribution limit is $17,500.
Going back to our earlier example, if you were able to invest $17500 for the next 30 years with an 8% return, you’d have $1,982,456 by the time you were ready to retire.
In case you don’t know, a 401k basically allows you to set aside money for retirement and let it grow tax-sheltered until you’re ready to take it out for retirement. This is a huge advantage over traditional methods of saving because it allows your investments to grow more rapidly.
Don’t have enough money to make the maximum 401k contribution every year? That’s no problem – you just have to be creative. One of the tricks I used to bump my savings up was to divide my raise in half every year. Take whatever amount you get for a raise and apply at least half of it to your 401k. Within a few years you’ll find yourself slowly creep up to the maximum limit.
Along the same lines, make sure you’re taking FULL advantage of your employer’s 401k matching contribution (if they offer one). If you don’t know what those terms are, call your HR department and find out immediately. To not do so would be like leaving free money on the table!
Maximize Your Personal Savings Too:
If you’ve still got money to save and really want to take your retirement savings into hyper-drive, then there are a few more things you can do to build up your nest egg even higher.
Of all your retirement savings options outside a 401k, an IRA is the first place I would start. An IRA basically works the same as a 401k (in terms of tax sheltering your retirement savings) except it has nothing to do with your employer. You simply set it up with an investment institution and save to it as you please.
For most people IRA’s generally come in one of two kinds – a traditional and a ROTH. You can read all about the differences and similarities here.
Once you’ve exhausted all your tax-sheltered retirement savings options, the next place I’d think about saving money would be in a traditional brokerage account with long-term stocks. When it comes to stocks, you don’t pay taxes on them until you sell them. Plus when you do, they are taxed at a much lower rate than your traditional income (thanks to the US tax code).
Some great places to find money for both of these options would be any time you make a big sale, do side jobs, get a tax refund, earn profit sharing or a company bonus, or receive a large windfall.
Invest Aggressively But Don’t Be Foolish:
The beauty of starting your investing when you’re young is that you’ve got a lot of time to work with. Therefore you don’t have to take on as much risk.
Because you’re starting to save for retirement in your 30’s, time is slowly creeping away. And that means taking on a little more risk with your investment selections. Go for more mutual funds that cater to stocks rather than bonds. Be sure to also choose ones that target more small-cap, medium-cap, and international stocks as opposed to just all large-cap stocks.
But don’t go overboard.
Most financial advisors will agree that you can never beat the average of the stock market over the long term under any circumstances. That return is generally 8% per year. A wise person will acknowledge this point and simply choose funds that close to this return rather than try to beat it. Remember: Just because you’re starting to save for retirement later doesn’t mean you’ll somehow beat the system.
Make Retirement Saving a Priority:
This is one of the hardest points to keep in mind. But it is also the one that will give you biggest return.
Every time you think about buying something large (or even a lot of small things), ask yourself: Is this more important than saving for retirement? Am I truly making my retirement savings a priority?
That’s not going to always be such an easy decision. Life in your 30’s and beyond can really be full of a lot of unwanted surprises:
- Car repairs,
- health problems,
- things to fix up around the house,
- saving for your children’s college,
It’s up to you and your family to decide where these things rank on the grand list of priorities.
Here’s another very common scenario: What if you change jobs or worse – get fired? It can be very tempting to cash out your 401k or dip into it your retirement savings while you’re unemployed. But cashing out or even borrowing from your 401k is not always a good option. It might help you in the present but it can have devastating effects for your future.
Check Your Progress to Make Sure You’re on the Right Path:
Now that you’re serious about saving for retirement at 30, you’re going to want to check in on your progress every now and again to make sure things are going in the direction you want it too. “Setting it and forgetting it” is okay for a few months but I wouldn’t go any longer than that without seeing where you’re at periodically.
The things you’re going to want to look for will be:
- What kind of return you’re earning
- How much investment fees you’re paying
- Your asset allocation
- How much longer you’ve got to go until you’re officially ready to retire.
If any of these things are not to your liking, feel free to make changes to your plan. You owe it to yourself to keep your retirement savings on track and heading towards the goal you ultimately want to reach.
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