Just Getting Started
You’re just getting started planning for retirement in your 30s, so begin by creating a safety net to help your family. Then, plan out your retirement goals to help you learn how much you should be saving.
Whether you’re starting a family, buying your first home or launching your career, your 30s are a time for new beginnings. But don’t forget to also start a retirement planning strategy to help you reach your long-term financial goals. The earlier you start saving for retirement, the fewer money worries you’ll have in the future. This checklist can help you achieve the retirement of your dreams:
- Have a safety net for your family
Before saving or investing for retirement, you’ll want to have six months worth of income in an emergency fund you can tap if necessary for unexpected, urgent family expenses. Also, consider health and disability insurance to help protect your family and life insurance if your children, spouse or partner are dependent on your income.
- Write down your retirement goals
Sure, retirement seems far off. But it’s useful to jot down your best guesses for the age you want to retire, where, and what you plan to do in retirement. You’ll change those goals along the way, but you need to start somewhere. If you’re married or have a partner, be sure both of you do this exercise and compare notes.
- Start saving as soon as you can
Because you’re still young, you’ll benefit hugely from the power of compound interest, as you’ll see in the Wells Fargo Compounding Calculator. Take a look at how much more this 35-year-old woman might have at 65 compared with the 45-year-old, even though both save $300 monthly and earn 4% a year: By starting 10 years earlier, the younger woman will have $208,214, compared with the $110,032 for the older woman.
The earlier you begin saving, the more you could benefit from the power of compound interest.
This table assumes a 4% return on investment. This information is hypothetical and is provided for informational purposes only. It is not intended to represent any specific investment, nor is it indicative of future results.
- Consider using tax-deferred retirement plans
Money may be tight if you’re starting to raise kids or now have a mortgage and car payments. But even if you can’t put a lot of money into an Individual Retirement Account, 401(k) or 403(b) plan, consider contributing what you can. If you have a 401(k) or 403(b) at work, try to invest at least as much as your employer matches, since the match is essentially free money. When you get a raise or a bonus, put some of this newfound cash into an IRA or your employer’s saving plan.
- Create a suitable investment mix
It’s easy to feel overwhelmed by investing choices. But by following these guidelines, you may be able to start building a solid retirement portfolio.
Create a suitable mix of stocks, bonds, and interest-paying savings accounts to help protect you against short-term market drops. By utilizing a suitable asset allocation strategy and dividing your dollars among a variety of investments, you can decrease the likelihood that all the investments in your portfolio decline at the same time. Of course, by the same token, it’s also unlikely that every investment in your portfolio would go up at the same time. Bear in mind that although asset allocation can help diversify your portfolio, it does not protect against fluctuating prices or uncertain returns.
- Think about investing automatically
You’re busy, so it can be easy to forget about saving for retirement regularly. Instead of making yourself remember to do it, put your retirement on autopilot. You can consider setting up an arrangement for a preset amount of money to automatically move from your bank account to your IRA each month. Please be aware that a periodic investment plan such as dollar cost averaging does not assure a profit or protect against loss in declining markets. Since such a strategy involves continuous investment, you should consider your ability to continue purchases through periods of low price levels.
- Work with a financial advisor
A financial advisor can help you plot a strategy and take advantage of the best ways to save for retirement.
Catey Hill is money editor for the New York Daily News online and author of SHOO, Jimmy Choo!