Retirement Planning in Your 30s

If we had summarize what retirement planning in your 30s was all about, then it would probably go something like this...  When you're in your 30s, you are in a unique position from a retirement planning standpoint.  For most of us, these are the "make or break" years - here's why.

It's certainly understandable how those in their 20s are too busy with other things in their lives to think about retirement.  It's so far away and really not on their radar screen.  But most 30-somethings have settled-down a bit.  Those college years - and hopefully college loans - are far behind; perhaps you're married and even started a family.

The point here is that by the time you've reached age 35, most of us know exactly what we want out of life.  We know where we want to live and we have pretty solid ideas about our career goals.  You've also been working for more than ten years and you come to realize that retirement is not too far away.  After all, those first ten years went by pretty quickly.

Unique Retirement Planning Opportunity

So what exactly is so special about being in your 30s when it comes to retirement planning?  The unique opportunity you have is simply this - you've got a good deal of financial experience and you still have time to make retirement planning fun.  Well, almost fun.

We're going to demonstrate this later on when we crunch through some numbers.  But the fact of the matter is that you should have a good understanding of what it takes to make all your monthly payments by now, and with around 30 years to save for retirement you've still got time on your side.  Retirement plans made after your 30s need to be much more aggressive then those made while you're still in your 30s.

Time and Retirement Planning

To demonstrate just how powerful time is for those of you still in your 30s; let's look at the following example.  We'll pick the mid-range age of 35 and compare your necessary savings rate to that of a 55 year old.  We did this calculation on our retirement savings calculator in case you want to run through some scenarios yourself.

Retirement Savings Example

In this particular example, the calculator tells us that your household income, if you're thinking about retiring at the age of 65, would be pretty close to $145,000 / year.  And you'd like to make around $100,000 a year in retirement - 70% of that value.

To meet that retirement income goal, you'd need to save just $5,359 / year while a 55 year old needs to save $10,125 / year just to make only $75,000 a year in retirement.  Keep in mind that the 55 year old is only about 10 years away from retirement, so in this example they'd be making around $107,000 when they reach age 65.

If you don't like our example, use one of our retirement calculators and run through the numbers yourself.  There is no doubt that you'll come to the same conclusion - saving for retirement now makes things much less stressful on your pocketbook later on.

Saving for Retirement in Your 30s

We've recently introduced a new retirement planning guide in our publication on investing in retirement plans.  That publication walks you through a series of questions to help you select the best approach to retirement saving.

Because you've still got time on your side, your savings strategy is still basically a two option approach - employee sponsored retirement plans and individual retirement accounts.

Employee Sponsored Retirement Savings Plans

If you're employer offers you a pension plan, and if you believe that Social Security will still exist when you retire - which were the assumptions we used in our example - then you can probably fill 100% of your retirement income gap simply by participating in and employee sponsored retirement savings plan such as a 401k plan or a 403b.  You might also be offered the newly introduced Roth 401k or Roth 403b.

That's right; retirement planning really could be that simple for those of you still in your 30s.  With as many as 30 years to save, you don't need to set aside much money each year.  In fact, many employers will match their employee contributions, making this an ideal way to save for retirement.

Individual Retirement Accounts

If your employer does not offer you a retirement savings plan, then your next option would be to open an individual retirement account such as a Roth IRA or a Traditional IRA.  The current contribution limit for a Roth IRA is around $4,000 to $5,000 per year - which is less than the $5,300 retirement savings goal in our example.  But if you're married, then your spouse can open an IRA too.

Even if an IRA will not meet 100% of your retirement funding target, don't worry too much.  If you're leveraging all the retirement savings plans available to you that's the best you can do right now.  The important point here is to take that first step and put that money aside for retirement today.

Retirement Planning Strategies in Your 30s

If you're in your 30s, then there is a good chance you've been exposed to a systematic approach to solving a problem at work.  Here the problem is creating a viable, long-term retirement strategy.  Our recommendation is take the "plan, do, check and act" approach to solving your retirement planning problem:

1. Plan - Create a true retirement plan.  Take your time and think about things like your "ideal" retirement age.  Think about questions and their answers such as - What other major expenses - paying for a wedding or paying for college - might throw your retirement plan off for several years?  Use tools such as retirement calculators to figure out how much you need to save each year.
2. Do - You're done with the hard part, now all you have to do is to follow your plan.  If your retirement plan calls for placing $4,000 into an IRA then, as the saying goes, just do it.
3. Check - After your plan has been in place for a couple of years, you need to revisit that plan and ask yourself some slightly different questions.  Were your original assumptions accurate?  Is your salary growing faster or slower than planned?  Is your retirement account balance growing as fast as you thought it would?
4. Act - If your old plan still applies to the current situation, then just keep going.  Of course you need to check it again in a couple more years, but if it doesn't need fixing that's great.  If you've found that you need to make adjustments, then simply incorporate them into your revised retirement plan.

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