If you’re in your 30s, you know saving for retirement feels like one more ball to juggle. You may be settling into your career, making a decent salary and building a solid financial foundation. However, you may still face student loans, a mortgage payment and, potentially, a growing family.
The great thing is that you still have a lot of time to use to your advantage. That time, when paired with some small changes, can improve your retirement outlook. Here are five steps to master retirement planning in your thirties.
Save At Least 15% of Your Income For Retirement
The first step to saving for retirement in your thirties is to actively invest your money. A common question is, ‘just how much should I be saving for retirement?’ Investing at least 15 percent of your income is necessary to put your retirement planning on track. “Fifteen percent of income is an aggressive target, but is necessary to accumulate sufficient savings to retire,” says Robert R Johnson, Ph.D., CFA®, CAIA®, CLF®, President and CEO of The American College of Financial Services.
Putting aside such an amount may seem impossible, but given the right mindset, you can hit the number. Keep in mind that if you get a match through your employer-sponsored 401(k) plan, that amount can be deducted from the amount you need to save. So, for example, if you receive a four percent match, you only need to save 11 percent. Johnson also recommends using raises as a way to increase your contributions. This keeps you from impacting your standard of living and save more for retirement at the same time.
Don’t Be Too Conservative
It’s easy to shy away from risk when we have other obligations to manage. We view risk as bad and focus on things that mitigate our exposure to it, so we don’t suffer losses. You may not realize it, but by shying away from risk actually causes you to take on more risk – specifically, the risk that you won’t reach your retirement goals. Taking on smart risk brings greater reward and greater possibility you’ll reach those goals.
You can manage much of that risk through proper diversification. According to Johnson, choosing to invest in your 401(k) plan is the most important investing decision you can make. Proper asset allocation, or diversification, is the second most important. “The alarming trend we are seeing now is that young people are adopting too conservative an asset allocation at a young age when their time horizons are over 40 years,” says Johnson.
If you don’t know how to select the best asset allocation to manage risk, many broad-based index funds will do much of the heavy lifting for you and at a reduced cost.
Kill Your Debt
High-interest debt is the prime enemy to retirement planning. Investing for retirement in your thirties requires you kill that debt so more money can go towards investing. This helps you kill debt and allows you to enter the prime earning years of your 40s poised to exponentially grow your retirement assets. You may be tempted to give into lifestyle inflation as you begin to earn more money. It’s vital not to give into that temptation as it’ll likely only lead to more debt.
One big aid to help you kill your debt is your emergency fund. As your income and expenses grow in your 30s, it’s important to grow your emergency fund. This helps you cover surprise expenses and avoid going into debt that’ll detract from investing money.
Go Beyond Your Investments
Saving for retirement in a 401(k) and other retirement accounts is important, but don’t overlook other needs like insurance and a will. If you have a growing family, they both play a key part in your overall retirement planning picture as both will help protect your family in the event of an untimely death.
“Financial planning is not a singular proposition. It demands that one juggle competing goals,” says Johnson pointing out just how important it is to view your retirement holistically. Having proper life and disability coverage are just as important as putting money in the stock market and can often be done for a reasonable price – making it worthwhile to protect your family.
Begin Saving for College
Saving for college vs. saving for retirement is a popular debate in the personal finance community. If you have young children, it makes sense to start saving in small amounts for their college needs while you are still in your thirties.
While it’s important to focus first on retirement, putting away small amounts for their future needs helps protect you from needing to set aside more as they get older, which will impact your retirement more. That’s also not to mention the fact it gives the funds more time to grow.
Your thirties can be an exciting decade. With some hard work and smart planning, you can set yourself up for success now and later in life.