How to start saving for retirement in your 30s
Investing in your 30s for retirement is about increasing funds, and being comfortable with risk. A good financial strategy is to have a solid emergency fund while you begin to increase your investments both in your retirement and other non-retirement investment goals. Hopefully at this stage in your career, your income has increased since your 20s.
Go-all in:Tax-Advantaged Retirement Accounts
This is where you have an opportunity to take full advantage of tax-advantaged retirement accounts. What does that all mean? Basically, you’ll want to contribute to accounts that help you optimize for tax when you retire. This includes your employer-sponsored accounts like 401(k), Thrift Savings Plan (TSP) for government, or Simple IRA for small business. Remember, the more you put in early, the better you’ll be off much later. For a 401(k) max contribution in 2021, it’s $19,500, not including company match. Try to send your pre-tax dollars into this account, that’s about $1625/mo.
Open up a Roth or Traditional IRA
If you haven’t done so, open up a Roth or Traditional IRA with your favorite brokerage account or bank. The IRS allows you to contribute $6000 in 2021 to your Individual Retirement Account (IRA). That’s about $500/mo. This is addition to your 401k or employer sponsored account. That means you can put a total of $25,500 in your retirement account per year as of 2021.
Here’s an example
if you started contributed for retirement when you were 35 years old, and contributed the max. You would have $2,993,180.06 assuming a monthly contribution of $2125 for 30 years at 8% return when you are 65 years old.
A good way to contribute is to adjust your automatic contribution in the beginning of the year. Even if you can’t max contribute as that’s a lot to put in, try bite sized investments like $100 per month in your IRA while you max out your 401k.
Plan for investment growth, but be prepared dips in the market
Now that you’re in your 30s, you can still afford to be aggressive with your investment strategy as you have years til retirement. Don’t put all your eggs in one basket, keep contributing to retirement, put your money in well diversified index funds, and look into real estate. You may be thinking or saving for a house, but you can always get into REITs (Real Estate Trust Funds) like Fundrise.
As you invest in your 30s however, be prepared for rainy days or dips in your investments whether it be stocks or real estate. You don’t want to be put in a positive where you need to pull money out of your investment or sell stocks when they are down. Having enough money in your emergency fund while being okay with the dips while you grow your investments are important things to have in place. This is key so make sure you have at least 3-6 months stashed away for emergencies, if not 12 months on the save side.
In your 30s, there will be so many milestones you’ll be planning for or accomplishing. Getting settled in with your career, planning for a proposal, marriage, buying a home, having babies. What ever your goals may be, having a solid investment strategy and contributing monthly to it will set you up for success for any of those goals, in addition to retirement.