As your 30s roll in, life has a way of changing your financial priorities. From aging parents and parenthood to marriage and homeownership, your monthly budget may feel the pressure of new demands. As a result, you might want to put the brakes on your retirement savings and use that money elsewhere.
But your 30s are ripe with possibility that makes this decade key in your retirement savings strategy. The best way to save for retirement in your 30s is to use your increasing earning power to boost (and protect) your 401(k) and IRA contributions—two accounts that will pay you back for years to come.
Why saving for retirement in your 30s is exciting
An old adage says, “In your 20s, you learn; in your 30s, you earn.” This couldn't be more true. By your early 30s, you likely have your first professional job or two under your belt. As you move up the career ladder, greater responsibility comes with greater pay. So when you get your paycheck, that’s cause to celebrate. Why? Because every paycheck is a chance to save.
“On average, most people who work a W-2 job have about 1,500 paychecks during their career,” says Kevin Michael Gomez, Jr., a financial advisor with Northwestern Mutual. Just think of it: Even though you likely have more than a few paychecks under your belt, you literally have more than a thousand in front of you. That means your 30s is the ideal time to establish a savings strategy that will grow with your life and salary.
6 tips: How to save for retirement in your 30s
Fortunately, a retirement saving strategy isn’t difficult to build. And to help you get started, you can use these six tips to start and supercharge your savings. Before you know it, you’ll turn your 30s into the foundation for retirement savings success.
1. Dial-in your 401(k)
If you don’t have a workplace retirement plan, it might be time to change jobs. If you have a 401(k) or 401(3)b plan at work, it’s time to dial in your contributions. Here’s a step-by-step process to guide you.
- Make sure you get your match. If your employer offers to match a percentage of your contributions, make sure you’re contributing enough to get the match. Otherwise, you’re leaving free money on the table.
- Bump up your contributions. If you’re deferring 3% of your salary into your employer’s retirement plan right now, adjust that upward to 4%. If you get a raise, bump it up another percentage point. Small adjustments pay huge dividends over time, thanks to compound interest.
- Check in on your contributions twice annually. January and mid-year are perfect times to check in on your salary deferrals. Doing so can help you slowly ramp up your contributions and eventually reach a 15% to 20% deferral rate—the percentage of your salary that experts suggest saving for retirement per year.
So, how much difference can a few percentage points make in your retirement savings? The answer might surprise you. Say you’re 30 and making $70,000 today with an employer match of 100% on the first 3% of your salary, and your current 401(k) balance is $10,000. If you get a 3% raise per year for the next 10 years, here’s what your 401(k) balance might look like at a conservative 6% annual rate of return.
See that? A mere 3% bump in your contribution increases your potential savings by nearly a quarter million dollars at age 60. And here’s the best news: In 2023, anyone under age 50 can contribute up to $22,500 to their 401(k). Talk about a great start on a nest egg. Learn more about 401(k)s, their contribution limits, matches and more with our comprehensive 401(k) guide.
2. Add to your savings with an IRA
Whether you’re maxing out your employer’s 401(k) or would like to explore other investing options, opening an IRA can add to your future savings stash.
IRAs are personal retirement accounts that you open outside of any employer-sponsored plan. They come in several flavors, but the traditional IRA and Roth IRA are the most popular. The contribution limits are the same on both—up to $6,500 per year in 2023 for those under age 50. The difference between the two is really the tax treatment of withdrawals.
During retirement, withdrawals from a traditional IRA are taxed as ordinary income. However, withdrawals from Roth IRAs are tax-free—provided you satisfy a few rules.
Whichever IRA type you choose, it’s an added boost to your savings and can help you diversify your investments beyond those offered by your employer-sponsored plan.
3. Be. Aggressive.
Sure, it’s a common order barked by the cheerleading squad, but some level of aggression can be good when it comes to retirement savings. When saving for retirement in your 30s, you can afford to be a bit aggressive with your investment selections.
When you opt for a more aggressive asset allocation, your portfolio will likely have more equity investments—stocks, ETFs, and mutual funds—than fixed-income investments—bonds and IRA CDs. Why? Because your time horizon—or the time you have between today and your target retirement age—is longer. You can afford to have your investments dip in value because you have time to recover.
On the other hand, investing too conservatively in your 30s could cause you to come up short on your retirement savings goals. For instance, experts tend to agree that the historical returns of the stock market range between 7% to 10% annually. However, more conservative investments like bonds and IRA CDs tend to yield much less—especially when interest rates are low.
A financial advisor can help you find your ideal asset allocation. You can also work with a robo-advisor to help dial in your portfolio and put your asset allocation on autopilot.
4. Be mindful of company stock
If you find yourself employed by a company that grants stock as part of your compensation package, that could be a double-edged sword. On one hand, your retirement savings can grow when your company does well. On the other hand, your retirement savings could be overly concentrated in your employer’s stock.
If your company stock makes up more than 10% of your total retirement portfolio value, it may be time to plan a downsizing. Most companies have restrictions on when you can sell company stock, so it helps to plan for the sale. Your company’s benefits or human resources department can help you navigate selling shares if and when the need arises.
5. Roll over, roll over
As your career skills and reputation grow, you might change jobs to increase your earnings and advance your career. At that point, you’ll need to decide what to do about your 401(k) or 403(b) plan at your previous employer.
The first order of business: Resist the temptation to cash out. Not only will the tax bill be unwelcome, but you’ll be setting your retirement savings back to zero. Instead, there are two better choices: keeping your funds in your old employer’s plan or rolling funds over to your new employer’s 401(k) or an IRA.
You might choose to keep your money put if your previous employer’s plan has low fees and great investments. Rolling your account balance into your new workplace plan or an IRA can help keep your savings under one roof. When rolling over to an IRA, you may also have access to more investment options than an employer’s plan can offer. A conversation with a financial advisor can help determine which path makes the most sense.
6. And if you’re laid off, don’t sweat it
Getting laid off can be a real punch to the gut. Whether you saw it coming or not, there’s rarely a good time for a layoff. And no matter how long the layoff lasts, the financial stress can put a real cramp in your retirement savings goals. But Akeiva M. Ellis, a certified financial planner and CFP Board Ambassador, says not to beat yourself up. “Life happens, and our best intentions and plans sometimes derail due to unforeseen circumstances.”
While you’re regrouping and looking for work, your retirement savings can wait. When you find your next career home, consider making extra contributions to an IRA or your new 401(k) to make up for the savings you missed. “You also may find that you cannot afford to truly ‘catch up’ on contributions, and that's ok,” says Ellis. “Pick up where you've left off; investing something is better than investing nothing.”
You can also meet with a financial planner to adjust your short- and long-term goals so you make the most of your saving in years ahead.
The takeaway
While your 30s might bring new jobs, responsibilities, and life events, one thing can remain constant: your commitment to retirement savings. The best way to save for retirement in your 30s is simply to take your investment options step by step. Together, those steps will build a path to savings you can be proud of decades down the line. After all, you’ll have worked to save it. Then, it’ll be time to spend it.
