Your thirties are a time of increasing accountability. You’re probably going to get married, start a family, and buy your first home. Earnings can quickly dwindle when you add a spouse, a mortgage, and children to the mix. Your entire family, including the dog, consumes a sizeable chunk of your earnings.
It’s tempting to put off retirement savings until later in life, especially when you’re in your 30s, but you should keep this goal in mind at all costs. You’ll need to control your spending to maintain a healthy savings rate.
Improve Your 401(k) Contribution Rate.
In the best-case scenario, you contribute the maximum amount to a 401(k) or similar employer-sponsored retirement plan each year (k). That comes to $22,500 in 2024. Rather than spending them, put the money you earn in raises toward retirement.
If you don’t have enough disposable income to put your entire raise straight into retirement savings, keep putting more away yearly. Increases of just one percent can have a significant impact over time.
If a person begins saving at age 30 and puts away 6% of their annual salary, or $3,000, they will have accumulated $1,159,517 by the time they reach the age at which they are required to begin withdrawing money from their 401(k). (We’ll assume annual growth of 8% for this.)
That same person would have $1,352,770 if they increased their annual contribution by just 1%, or $500. The total is $193,253. Bankrate provides a retirement savings calculator to see how your contributions affect your take-home pay.
Keep adding to your savings for unexpected events. Aim to have enough money to cover your living costs for six months.
Set up an Individual Retirement Account.
Congratulations, you’re responsible for saving as much as possible for retirement by contributing to your employer-sponsored retirement plan.
There will be a $6,500 limit on IRA contributions for those under 50 in 2024. Everyone needs a Roth IRA. You invest with money that you have already paid taxes on, and the growth of your savings is tax-free.
A Roth IRA doesn’t require you to withdraw money at any point in your retirement, and your income can keep rising indefinitely. A maximum annual income constrains one’s ability to put money into a Roth IRA.
Take a look at the traditional IRA if you don’t meet the 401(k) requirements. There are no eligibility requirements regarding income level or participation in a workplace retirement program. You can deduct your contribution from your taxable income, and any interest or dividends it earns will grow tax-free until you withdraw them.
The Asset Allocation Should Be Kept Aggressive.
Simply putting money aside isn’t enough. If you want to ensure you’re not throwing away any potential gains in your retirement savings, you should keep a close eye on what you already have.
When you’re in your 30s, you should start diversifying your portfolio and allocating 80-90% of your assets to stocks. In times of market uncertainty, it is crucial to focus on the long-term objectives you have set for yourself. The stock market fluctuates up and down. Losses are painful, but they frequently happen in life.
Manage Your Company Stock Carefully.
Don’t make the mistake of neglecting your assets, including your company stock. If the company’s stock has performed well, it could make up a sizable portion of your retirement savings.
There is widespread agreement among financial planners that a single equity holding of 10% or more should only account for a small percentage of a diversified portfolio. Any more than that, and you might be putting your retirement at serious risk.
Never Let the Prospect of a Better Job Derail Your Plans To Retire.
Don’t let your retirement savings suffer just because you’re switching jobs. Cashing out one’s 401(k) upon leaving a company is all too common.
If you withdraw money from your 401(k) before you reach age 59 and 1/2, you’ll owe income taxes (which could total as much as 37%) and a 10% early withdrawal penalty. Due to the pandemic and subsequent brief recession, 401(k) early withdrawal fees will be suspended in 2020.
The prudent course of action is to transfer the 401(k) funds to an Individual Retirement Account (IRA), where they can be invested at your discretion.
It’s easy to waste money on foolish mistakes like lousy timing. It is common practice for retirement plans offered by employers to have a “vesting” period during which employees must be employed before receiving full benefits.
With a 401(k), for instance, you might get to keep 20% of your employer’s contributions after a year, but you’d have to stick around for another year to get another 20%, and so on, until you’re fully vested. The pension system works differently, with benefits typically available after five years of service.
It may be beneficial to stay at your current job until you reach a vesting milestone that will allow you to keep your employer’s retirement fund contributions and pension benefits.
It’s Never Too Early to Open a 529 Plan to Save for College.
Parents, please note: It’s never too soon to start planning for your child’s future education. However, according to financial experts, retirement savings should still be a high priority.
McClary recommends a 529 plan as an excellent vehicle for parents to set aside money for their children’s future education expenses. A 529 plan, because it is permitted by Section 529 of the federal tax code, is a tax-advantaged savings plan for higher education or K-12 tuition.
In addition to saving money each month, families should research any grants, loans, scholarships, or work-study programs available to help pay for their children’s college expenses.
Start putting money away early if you intend to send your kid to Harvard. It’s easier to save a little bit every month over the long haul than trying to catch up when your children are in high school, just like any other significant expense.
Invest in Disability Insurance to Safeguard your Income.
Keep your future financial stability in mind. Disability insurance will replenish up to 60% or 70% of lost income if you become sick or injured and unable to work.
According to America’s Health Insurance Plans, most employers only offer temporary benefits. Still, many medium to large-sized companies provide permanent benefits for up to five years and perhaps even your lifetime.
Be sure to verify your insurance coverage. If you don’t have access to group disability insurance and have the financial means to do so, you may want to consider purchasing your policy. When discussing life insurance, a similar pattern emerges. It’s something that numerous companies provide. However, if you lose your job, your insurance will be terminated.
A term life insurance policy is the best choice if you are strapped for cash because it provides the most significant amount of protection for the smallest premium and locks in low, consistent annual rates.