Best Retirement Moves in Your 30s

You’ve got time on your side, so use it wisely to set yourself up for a nice nest egg.

Written by Elaine King CFP® / February 23, 2022

Quick Bites

  • Even though retirement might seem far away, your 30s is a great time to start or kick up your savings.
  • Establishing good financial habits now will pay off down the line.
  • Making investing automatic is the way to go.
  • The trick to riding out the stock market’s ups and downs is to diversify your investments.

When we were kids we read about the story of the turtle and the hare and learned that patience, steadiness and discipline pay off in the end. Establishing good financial habits and planning for your retirement in your 30s is similar to that story because while retirement may seem like a far-fetched idea now, being proactive about saving for it is a key necessity in your financial planning.

I’ll tell you a little story: In my 20s, while driving to a party, my husband asked me why I max out my 401(k) instead of using the money to see the world. I took the opportunity to explain to him that based on our lifestyle calculations, we needed to save at least $1 million to retire in our 60s. And then I shared the amount I had been able to save after maxing out my 401(k) after eight years—the difference between our goal and my balance was abysmal, so I needed to keep saving and growing my retirement nest egg.

Based on my own experience and my work helping others achieve their financial goals, here are some things you can also do to get ahead.

Inside this article

  1. Calculate what you need
  2. Determine contributions
  3. Choose a retirement account
  4. Figure out allocation

Calculate the amount you will need at retirement

There are lots of rules out there, but let’s use the traditional one that you must save at least 20 years of salary to retire. The thought behind it is that you will retire in your 60s and live until your 80s. However, times have changed and some want to retire in their 50s and live until their 90s, which widens the gap and the need for saving even more.

For example, if you make $50,000 and want to retire in 20 years, you should have $1 million saved (if you multiply $50,000 by 20 years you get $1 million). This assumption is not 100% accurate since the $50,000 of living expenses today is not adjusted for inflation, and it does not assume any growth from your investments. So this is the bare minimum.

Determine the amount that you can contribute

Arriving at the big number will take a combination of your savings and the investment allocation you chose to grow your retirement. First you must find a place in your budget to add an item that will represent a percentage toward retirement. Start with 10% but work toward 20% and ensure this happens automatically to avoid distractions and improve the probability of success.

For example, if you manage to grow your account at 7% every 10 years, the amount may double and this is why you need to start now to give your money time to grow. If you start in your 30s in a proper portfolio you will have three decades to make the amount bigger and potentially triple. Time is important because of the magic of compounding since money tends to grow not only on your initial savings but also based on the growth. Also, if you save in a programmed way, you can contribute fewer smaller amounts rather than having to contribute a lot as you get closer to your retirement.

Choose a retirement account

Once you’ve determined how much you need to save, you will need to learn about the types of retirement accounts to choose from. If you are employed, the first thing you need to do is max out your 401(k) to take advantage of saving your pre-tax dollars. If you are in the 25% tax bracket, you only receive 75 cents of each dollar you earn; however you are able to save that whole dollar when you put it in your 401(k).

Next will be your IRA or individual retirement account, where you can contribute $6,000 every year. You can choose if you want to add tax-deductible dollars in a traditional IRA where your money grows tax-deferred but you get taxed when you make withdrawals at retirement or if you want a Roth IRA where you contribute after-tax dollars that grow tax-deferred and you don’t pay taxes when you make withdrawals at retirement.

If you are a business owner, you can also contribute more to a SEP IRA or a Self Directed 401(k). Most of these are defined contribution plans, where you put in the money, as opposed to an employer.

There are also defined benefit plans such as pensions, but those, similar to the dinosaurs at one time, are almost extinct—however, it does not hurt to ask your employer if it offers them.

Create an investment allocation to grow your retirement

If you are in your 30s and assuming you will retire in your 60s, you will have a 30-year time horizon, which will give you plenty of time to enjoy up to three or four economic cycles. Each one tends to go up and down but it nets positive: On average, the stock market has returned 7% to 8% and the bond market 4% to 6%, so it will be wise to diversify your portfolio according to your age but also to your risk profile. 

There are plenty of risk profile questionnaires to determine your tolerance; Morningstar has one you can do online.  Most of them focus on simulations of what you will do if your portfolio goes down 10%, 20% or 30%. It is advisable to have a well-diversified portfolio that includes large corporations represented in growth and value stocks, international stocks, emerging markets, small caps and bonds, and consider other asset classes such as commodities, energy and utilities, depending on your investment profile. If you need help deciding on how to invest your money, consult a certified financial planner for advice.

About the Author

Elaine King

Elaine King CFP®

Elaine has served as the Family’s Financial Planner for over 1,200 families and 100 multigenerational family enterprises crafting actionable family financial plans.

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