How to Plan for Retirement at 30

Although turning 30 might feel like an unwelcome leap toward old age, don’t worry! You’ve still got decades left before retirement. That said, 73% of working adults started thinking seriously about retirement in their 30s, according to Thrivent’s Retirement Readiness survey. Depending on your age, you’ll likely want to take different actions to start your retirement savings plan. Here’s how to start saving for retirement at 30. If you need more personal advice for your situation, consider working with a financial advisor.

How Much Should You Have Saved By Your 30s?

Assuming you’ll retire at 65, it’s recommended to have a year’s salary worth of money in your retirement fund by age 30. This number puts you on track to save three times your salary by age 40 and continue growing your savings in the following decades.

If this number seems steep, remember that you can adjust your goal based on your income and retirement goals. For example, you might retire at 67 and live in your paid-off home. Doing so will give you a few more years of income, increase your Social Security benefit and eliminate a house payment from your budget.

Calculate How Much You Need to Retire

The best way to tell how much you should have saved at each life stage is to calculate how much you’ll need on the day you retire. The following steps will help you in your calculations:

Step 1: Choose Your Social Security Election Age

What age you start collecting Social Security determines how much you’ll receive every month. For instance, while 62 is the minimum age to receive benefits, you’ll boost your income by 8% for each year you delay it. As a result, waiting until 70 will boost your Social Security income by over 60%. Remember, every dollar of Social Security income you receive is money you don’t need to withdraw from a retirement account.

Step 2: Determine Your Lifestyle

Your lifestyle will drive your expenses in retirement. For example, if you want to take on expensive hobbies or vacation overseas, you’ll need additional money to fund your adventures. On the other hand, downsizing your home and living on a strict budget means your monthly expenses will be less demanding. Therefore, understanding your vision for retirement is crucial for determining how much monthly income you’ll need.

Step 3: Identify Your Expenses

Lifestyle and hobbies play into your expenses but don’t draw the whole picture. For example, if you have a chronic health condition requiring regular care, it will be a consistent expense during retirement. In a different vein, if you’ve paid off your home, you’ll still need to pay property taxes and homeowners insurance. So, putting all your retirement expenses together will help you estimate how much you’ll need per month and, in turn, how much you’ll need to save first.

Step 4: Follow the 4% Rule with Your Retirement Account

The 4% rule means counting on a 4% return from your retirement account and living solely on that income. This way, you won’t have much chance of dipping into your funds, meaning they’ll last for decades. For example, a $1 million retirement account returning 4% will provide you with $40,000 of annual income or $3,333 per month.

Combined with a monthly Social Security check of $2,000, your income is $5,333 without touching a dollar of your investing principal. Therefore, if your expenses are less than $5,333 and your Social Security income will be at least $2,000 monthly, $1 million is a feasible retirement savings target.

How to Plan for Retirement at 30

Planning for retirement at 30 is an excellent way to ensure you hit your goals. The following tips will help you create and execute a thorough plan for a comfortable retirement.

1. Make Retirement Savings Goals

Making goals is crucial in any endeavor and retirement is no different. It’s hard to know if you’re making progress if you don’t have a financial goal to measure against. Therefore, setting a goal for retirement should be your first step.

Fortunately, goals can look different over time and you can start small if thinking about retirement is intimidating. For example, say you don’t want to set a target for your total retirement savings. Instead, you can set a goal to deposit 4% of your paycheck into an individual retirement account in the next year. Doing so will kickstart your retirement fund and get you in the habit of putting money aside.

2. Identify Tax-Advantaged Accounts

Various retirement accounts give different tax advantages you may want to use depending on your financial circumstances. You can choose from the following:

Traditional IRAs and Roth IRAs

An individual retirement account (IRA) is an excellent way to save for retirement because anyone can open one. In addition, they give you two contrasting tax benefits. Specifically, a traditional IRA allows you to deposit pre-tax dollars into your account, which lowers your taxable income while you work. The drawback is you’ll pay taxes on withdrawals during retirement.

On the other hand, Roth IRAs use income the government has already taxed. As a result, you won’t gain a tax advantage during your career, but you won’t pay income taxes on withdrawals during retirement.

Remember, the primary drawback of all IRAs is the low annual contribution limit. In 2023, the limit is $6,500. So, if you want to put more than $6,500 per year toward retirement, you’ll need a second savings vehicle.

401(k)s and 403(b)s

Employers offer 401(k) plans to their employees, with 403(b)s being the equivalent account type in the nonprofit sector. These accounts are solely available to workers whose employers provide them. Like IRAs, they come in traditional and Roth forms. So, if you want to lower your income taxes now and pay later on withdrawals, you can use a traditional 401(k) or 403(b). On the other hand, Roth accounts allow you to pay taxes now so your withdrawals later are tax-free. That said, your employer might only offer a traditional account.

Your employer might also offer a match for your 401(k) or 403(b). Generally, the match means your employer will contribute money when you make deposits. For example, your employer could match half of your contributions up to the first 5% of your paycheck. Therefore, contributing 5% of your paycheck means receiving free money for retirement.

401(k)s and 403(b)s also have a higher contribution limit than IRAs. Specifically, the limit is $22,500 in 2023. This generous limit makes an employer-sponsored account an excellent retirement savings vehicle.

3. Make Savings a Priority

Putting off saving for retirement can be easy in the face of life expenses. However, years can pass by with this approach, leaving you far behind in your savings goals. So, use these tactics to start saving immediately and never miss a deposit.

Put Your Savings on Autopilot: Automating your savings is a surefire way to prioritize your retirement account. It saves you the struggle of manually transferring money from your bank to your retirement account. This way, saving becomes less painful and you can adjust your spending to the income you receive minus your automatic deposit.
Create a Budget: If it seems impossible to come up with the money for a monthly deposit, a budget can help. By examining your income and expenses, you can pinpoint where your money is going and trim back on nonessential expenses. For example, you might cancel your gym membership and start working out at home instead, then deposit that money into your retirement account every month.
Set Money Aside for Emergencies: An emergency fund is an excellent way to keep your financial monthly rhythm going when unexpected expenses arise. For example, maintaining a $1,000 balance in your savings account can help you pay for a car repair or a surprise hospital visit. As a result, you won’t go into debt or divert your retirement savings because of an emergency.
Put Financial Windfalls to Good Use: If you get a raise at work, throw the extra money in your retirement fund and maintain your current lifestyle. This approach can be challenging and a bit anticlimactic, but you’ll push your retirement account to new levels. Doing so will also help you make up lost ground if you start saving later in your career.

4. Protect Your Earnings With Insurance

If you have financial dependents, it’s critical to cover your earnings with insurance. Specifically, life insurance will pay out a guaranteed amount if you pass away, ensuring those you provide for will continue receiving comparable income. Likewise, disability insurance will replace your income if you become disabled. These policies are additional investments that provide for your family should something happen to you.

The Bottom Line

Planning for retirement at 30 gives you time to get your finances together, set goals and achieve them. While milestones such as saving three years of salary by age 40 can be helpful markers of progress, your financial circumstances determine how you should save for retirement. As a result, it’s best to identify your annual expenses in retirement and develop a goal from that figure. Then, you can use strategies like automating savings and receiving 401(k) matching contributions to advance toward your goal.

Tips for Planning for Retirement at 30

Retirement planning can be daunting because of all the moving parts. A financial advisor can help you manage your daily budget, retirement goals and investments to help you make the most of your income. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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