If you’re in your 30s, retirement probably feels like something that's far off in the future. However, the sooner you get started, the better. Investing in your 30s gives your money more time to grow through the compounding of interest. The additional savings can make a significant difference when you're ready to stop working.
Retirement planning doesn't have to be complicated, and even modest contributions can help you reach your goals when your money has decades to grow. Let's take a look at what it takes to get started, including setting goals, saving strategies, account options, and how to stay on track. Making smart decisions today will help make your golden years more comfortable and secure.
SET A CLEAR GOAL
The first step in how to start a retirement plan is to set a goal to work towards. Many financial experts recommend planning to replace 70-80% of your pre-retirement income annually. You won't have to replace all of it because some of your current expenses will likely be eliminated before you retire, like your mortgage.
Remember to account for inflation. Something that costs $1,000 today will cost significantly more in 30 years. You'll also need to take into account rising healthcare costs, which are increasing faster than other expenses. Thanks to advances in medical care, many people are living longer, which means your retirement savings may need to last 25-30 years.
Keep in mind that your goals may change over time, and that's completely normal. You might decide to retire earlier, work longer, work part-time, or downsize your lifestyle. The important thing is to get started so you can start growing your nest egg. You can always make adjustments if your goals change.
Retirement planning isn't something you have to figure out alone. Fibre Federal Credit Union offers professional retirement planning services through LPL Financial to help you create a plan to reach your goals. There is no cost and no obligation to meet with an advisor to discuss wills and trusts and a strategy to grow your retirement accounts.
PRIORITIZE RETIREMENT SAVINGS IN YOUR BUDGET
Once you know your goal, the next step in how to plan for retirement in your 30s is to include it in your budget. Treating your retirement contributions like your monthly bills helps you stay consistent. Consider paying yourself first by contributing to your retirement account before you spend on dining out, entertainment, and other non-essential expenses.
Many financial experts recommend saving 15% of your annual income for retirement. If that feels like it's too much, start with whatever you can. You can always increase your contributions later as you pay down debt or your financial situation improves.
Here are three simple strategies to help you fit retirement savings into your budget:
- Automate everything: Set up automatic transfers from your paycheck to your retirement account. Many employers allow you to split your direct deposit to send a portion directly to your retirement savings. Your credit union can also help you set up automatic monthly transfers from your checking account to your retirement account.
- Increase by 1% annually: Every January, increase your retirement contribution by 1% of your income. A gradual adjustment is easier to budget for than a large, sudden increase.
- Save raises and bonuses: When you get a raise or bonus, direct a portion of the money to your retirement savings. Since it’s extra income you weren’t counting on, you’re unlikely to miss it.
MAXIMIZE EMPLOYER BENEFITS
An employer-sponsored retirement plan is a powerful way to save for the future. Many employers that offer 403(b) or 401(k) retirement plans will match a portion of your contributions — sometimes even dollar for dollar, up to a certain percentage of your salary. It's free money you can use to dramatically increase your retirement savings over time.
If you participate in one of these plans, be sure you understand the details. Some companies offer immediate vesting, while others require you to stay for several years before the match becomes fully yours. This can be helpful if you are thinking about changing jobs. For example, if you only need to stay with your company a few more months to be fully vested, it might be worth waiting.
OPEN A TRADITIONAL OR ROTH IRA
Opening an Individual Retirement Account (IRA) is another way to grow your retirement savings. An IRA is a private retirement account you own that’s not tied to your employer. This means you can change jobs without having to transfer your account or start over. You can have an IRA even if you're contributing to your employer's 401(k) or 403(b).
The two most common types of IRAs are Traditional and Roth. The primary difference is when and how you pay taxes. With a Traditional IRA, you make contributions with pre-tax money, which may reduce your taxable income for the year. You’ll pay taxes on your withdrawals in retirement. With a Roth IRA, you contribute after-tax dollars. Your money then grows tax-free, and qualified withdrawals in retirement are also tax-free.
MAKE REGULAR ADJUSTMENTS
Life changes — like getting married, having children, or changing jobs — will likely affect your budget. That's why it's important to review your retirement plan at least once a year. Look at your contributions and how well your account is performing to see if you need to make adjustments.
Making small course corrections is a normal part of a long-term financial strategy. The important thing is to continue making regular contributions to your retirement account. Consistency is more important than perfection. Also, consider reviewing your plan with a financial advisor — like Fibre Federal’s Retirement and Investment Services — to make sure you’re on track to meet your goals.
BUILDING A BETTER TOMORROW
Retirement planning in your 30s can set you up for financial freedom later in life. Whether you're contributing to a 401(k), 403(b), or IRA, your savings will have years to grow into a strong financial cushion that gives you the freedom to retire on your terms.
Ready to get started? Schedule an appointment to speak with a financial professional to create a retirement plan that works for you.