If you're in your 30s, it's important to buckle down and plan for the life you want during retirement. Every move you make now will determine the quality of your life later. From paying off debt to maxing out your retirement accounts, you have to be willing to set bite-size goals that your future self will thank you for.
If you're anxious to get started, here are a few moves you can make to kick off your retirement planning goals before you turn 40.
Image source: Getty Images.
1. Start where you are
It's easy to put off retirement planning until later, but this could cost you in the future. Take advantage of the time you have now to get closer to your goals. Time is one asset you'll never get back, so it's important to make the most of it.
Here are some things you can do right now, even if you are in a financial rut:
- Monitor your income and expenses. You can increase your income, decrease your expenses, or do both if you want to increase your cash holdings.
- Create a debt repayment plan. The sooner you can pay off debt, the more money you can allocate toward your future goals.
- Take baby steps toward your savings goals, and increase your savings rate as you gain more control over your money. If you can only save $25 per week, start there. Build an emergency fund so that unexpected events won't interfere with your retirement progress.
2. Plan ahead for the future you want
Next, you want to think about the type of life you want to live during retirement. Planning ahead will be much easier once you have a vision of what your best life looks like during retirement. Start thinking about the following questions to help you develop an action plan:
- What is your target retirement date? Remember, you're not beholden to the standard retirement age.
- What activities will you pursue during retirement? If travel is on the list, you can position yourself for rewards and benefits that make that dream a reality.
- What are your expected expenses? Think about healthcare costs, mortgage obligations, and other people you may need to support.
3. Ramp up your savings with workplace contributions
For 2022, you can contribute up to $20,500 to employer plans like a 401(k), 403(b), or Thrift Savings Plan (TSP) if you're under 50. The contribution limit goes up to $27,000 if you are 50 and over.
Stash away as much as possible based on your financial situation and goals. If you get a pay bump or bonus at work, consider throwing that extra money into your retirement plan. Saving money for retirement will also come with tax benefits that can lower your current year tax bill. Your employer may even add matching contribution incentives to sweeten the pot.
4. Add an IRA to your retirement portfolio
Your employer plan may offer many perks, but don't forget about the power of an individual retirement account (IRA). You can set up a traditional or Roth IRA outside of your job and gain more control over your investment decisions.
Let's say you are 35. If you contribute at least $6,000 (the maximum IRA contribution for those under 50) over the next 30 or so years, you may end up with a million-dollar IRA. Here's an example of the numbers that can help you build a seven-figure portfolio if you invest the funds in your IRA:
- Age: 35
- Annual contribution: $6,000
- Investment rate of return: 10%
At age 66, you can celebrate your million-dollar IRA. If you have a traditional IRA, you'll have to pay taxes on any earnings you withdraw. However, a Roth IRA will give you tax-free earnings after you've reached 59 1/2 and have met the requirements of the five-year rule.
All it takes is one step to get the ball rolling. Write down your first action step you plan to take right now, and you'll be one step closer to the retirement you've always dreamed of.
