People in their 30s often have a hard time imagining life in retirement. For this reason, some people delay saving and investing until it’s too late. Especially when markets are volatile, it might feel safer to do nothing.
But the perfect time to save and invest for retirement is while someone is still decades away from the traditional retirement age of 65. It also allows time to ride out the inevitable ups and downs in markets and the economy and build wealth over the long term.
Here are five steps people in their 30s can take to start preparing for retirement today.
1. Estimate how much money is needed to retire comfortably
It’s never too soon to determine an estimated amount of money needed to retire. The estimated amount required varies depending on different factors, such as:
- Lifestyle, both current and during retirement
- Cost of living in the planned retirement location
- Expected monthly rent or mortgage payments
While the various factors mean there’s no one-size-fits-all approach for how much savings someone will need, having a target in mind is helpful. Online retirement calculators can take inputs like current age, income, savings, and anticipated retirement date and provide a target amount per month someone will need to save to reach their ultimate goal.
2. Create a budget
After determining how much money it will take to retire, people in their 30s can start working on a budget. Tracking and analyzing expenses for a few months shows where money goes and presents an opportunity to identify areas of overspending. Using this information to make minor budget adjustments can ensure that retirement savings are on track.
As a result of getting a budget in place, people may find there’s excess money to deposit into a 401(k) or another retirement plan. Plus, contributions to traditional 401(k)s and IRAs are pre-tax, meaning they reduce taxable income while helping retirement accounts grow.
3. Start saving early and often
People in their 30s have an advantage in retirement planning: time. The earlier someone adds to their retirement accounts, the larger the savings are likely to grow compared to those who begin to save at a later age, thanks to compound interest.
Compound interest on regular contributions can have huge impacts on savings over time. For example, a 30-year-old with $10,000 in savings that grows 7% annually could have $106,765 by age 65. With additional annual contributions of just $1,000, the savings could grow to $254,679. Larger, recurring contributions generally mean more money down the road.
4. Manage retirement savings and invest
It can be easy to lose sight of employer-sponsored retirement accounts over a lifetime of different jobs. That’s where planning ahead pays off. Since job changes are common when people are younger, those in their 30s can plan for what to do with a 401(k) when changing jobs to ensure retirement accounts aren’t forgotten. There are several options to consider, including leaving the 401(k) with an old employer, transferring assets to the new employer’s 401(k), or rolling the money in the 401(k) to an Individual Retirement Account (IRA). A major benefit of an IRA is that it’s tied to an individual, not an employer, meaning someone can continue to invest money on their own, regardless of employment status.
Whether someone is setting aside money in a 401(k) or IRA, choosing the right investment options to maximize long-term returns is key. After all, saving is an essential step in preparing for retirement, but investing is what allows money in retirement accounts to grow. While employer-sponsored 401(k)s may have more limited investment options, IRA investments tend to be more flexible and can range from stocks and mutual funds to ETFs and alternative investments.
The right retirement plan depends on the individual’s goals and risk tolerance. Since young investors have decades for money to grow, it can make sense to take on riskier investments. Yet some people may find the regular up-and-down fluctuations of a riskier investment aren’t worth the stress. That’s where professional guidance can come in handy.
5. Consult a professional
When it comes to retirement planning, professional advice can be a great help, especially for newer investors. A financial advisor can help set up a standard retirement plan designed for someone in their 30s, or set up accounts to fit the wants and needs of each individual, providing a bespoke experience.
For people in their 30s, now is the right time to start planning and saving for retirement. Investing money early in life gives it plenty of time to grow in retirement accounts. Smart saving habits, budgeting, and helpful retirement plans like 401(k)s and IRAs can put people on track for a comfortable retirement.
For people deciding to move their old 401(k) accounts, the good news is Capitalize handles the legwork and makes moving the old account simple. All someone needs to do is provide Capitalize their old employer’s name and choose an IRA provider on Capitalize’s website. Capitalize will handle the process of rolling over the old 401(k) for free, saving time and hassle.