3 Tips to Save for Retirement in Your 30s
If you’re in your 30s, retirement may sound far away. But guess what? In terms of age, you’re already halfway there. Daunting, huh?
When you turn 59½, you can start withdrawing from your 401(k) and Individual Retirement Account, or IRA accounts without penalty. If you withdraw money any earlier, you’ll pay a 10 percent penalty, according to the Internal Revenue Service (IRS). Of course, you’re not required to retire at age 59½. You might choose to keep working until you turn 67, the age at which you’ll be able to collect full Social Security benefits, assuming you were born after 1960.
This means that if you’re 30, you still have three to four decades to help save and prepare for one of the biggest expenses of your life. Time is on your side. Here are three tips to help you boost your retirement savings in your 30s, even if you’re starting from scratch.
Claim Your Employer’s Match
Create a Budget With Retirement First
Adjust Accordingly to Stay on Track
1. Claim Your Employer’s Match
An employer match is money that your employer pays into your retirement account, on the condition that you also chip in some funds. For example, let’s say that your employer matches dollar-for-dollar up to the first 5 percent. This means that if you contribute 5 percent of your paycheck into your retirement account, your employer will double this. The result? You’ll save the equivalent of 10 percent of your salary toward retirement, with only a 5 percent cut from your paycheck.
Don’t have a retirement plan at work? Self-employed individuals can open an Individual (Solo) 401(k) or a Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) account, notes the IRS. And employees without access to an employer-sponsored plan can open an IRA. You can choose between two types of IRA accounts: Traditional, in which your contributions are tax-deferred (you’ll pay taxes later in retirement), or Roth, in which your contributions are taxed today, but you can withdraw the money tax-exempt in retirement, says the IRS.
2. Create a Budget With Retirement First
Your next step is to create a budget that puts retirement first. Grab a piece of paper. At the top, write down your current total pre-tax income, including your salary plus any income from side jobs, investments or freelance work. Then, subtract 10 to 15 percent, which is the minimum you should set aside for retirement, according to CNN Money. If you’re already saving at least this amount for retirement, good job! But if not, it’s time to adjust your budget so that you’re saving a minimum of 10 to 15 percent in retirement accounts.
Don’t follow the pattern of spending first, and saving “whatever is left over.” Instead, prioritize your retirement savings first, and live on the amount that’s left over. This means the constraints of your mortgage, utilities, transportation, groceries and all other expenses will have to fit into the amount of your paycheck that remains, after you’ve paid into your retirement first. Your future self will thank you.
3. Adjust Accordingly to Stay on Track
Here’s a rule of thumb that you might want to consider: By age 30, you should have at least one times your annual salary saved for retirement, says CNBC. If you began working at 22 and saved at least 7 to 10 percent of your income in a retirement fund from the start, your savings plus investment growth could allow you to reach this number. But realistically, you may have been a graduate student until you were 28. Or, you may have had a child in your early 20s and devoted most of your income to childcare during that decade. Don’t worry if you didn’t reach this benchmark by age 30. Focus on the steps you’ll take to get back on track.
As mentioned above, 10 to 15 percent is the minimum amount that you’ll want to contribute to your retirement accounts. If you’re behind schedule, though, increase this to 20 percent or more. This means you may need to cut back — perhaps significantly — in other areas, most notably housing, transportation and food, which are the three biggest expenses in an average household budget, according to the Bureau of Labor Statistics. You may want to consider boosting your income by accepting side jobs on the evenings and weekends, or search for a higher-paying role in your company or at another company.
Saving for retirement in your 30s can be critical. It’s tempting to push off retirement savings for a few more years, especially as you balance other priorities like buying a home, paying off student loans and paying for childcare. But you may be cheating yourself. Make retirement savings your top priority, even if this means downsizing or delaying other goals. Your 60s will arrive sooner than you think.