If you’re in your 30s, it’s important to buckle down and plan for the life you want in retirement. Every move you make now will determine the quality of your life later. Whether it’s paying off your debts or maximizing your retirement accounts, you should be prepared to set small goals that your future self will thank you for.
If you can’t wait to get started, here are some steps you can take to kick-start your retirement planning goals before you turn 40.
1. Start where you are
It’s easy to put off retirement planning, but it could cost you in the future. Take advantage of the time you have now to get closer to your goals. Time is an asset you will 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’re 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 flow.
- Create a debt repayment plan. The sooner you can pay off your debts, the more money you can devote to your future goals.
- Take small steps toward your savings goals and increase your savings rate as you gain more control over your money. If you can only save $25 a week, start there. Build an emergency fund so unforeseen events don’t interfere with your retirement progress.
2. Plan ahead for the future you want
Next, you need to think about the type of life you want to lead in retirement. It will be much easier to plan ahead once you have a vision of what your best retirement life will look like. Start thinking about the following questions to help you develop an action plan:
- What is your target retirement date? Remember that you are not subject to the normal retirement age.
- What activities will you pursue in retirement? If travel is on the list, you can position yourself for rewards and perks that make that dream a reality.
- What are your planned expenses? Think about health costs, mortgage obligations and other people you might need.
3. Boost your savings with workplace contributions
For 2022, you can contribute up to $20,500 to employer-sponsored plans like a 401(k), 403(b), or Thrift Savings Plan (TSP) if you’re under age 50. The contribution limit goes up to $27,000 if you are 50 and over.
Hide as much as possible based on your financial situation and goals. If you get a raise 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 tax bill for the current year. Your employer can even add matching contribution incentives to sweeten the pot.
4. Add an IRA to your retirement portfolio
Your workplace plan can offer many benefits, but don’t forget the power of an Individual Retirement Account (IRA). You can set up a traditional or Roth IRA outside of your job and have more control over your investment decisions.
Let’s say you are 35 years old. If you contribute at least $6,000 (the maximum IRA contribution for those under 50) over the next 30 years, you could end up with a million dollar IRA. Here is an example of the numbers that can help you build a seven-figure portfolio if you invest the funds in your IRA:
- Age: 35 years old
- Annual fee: $6,000
- Investment return rate: 10%
At 66, you can celebrate your million dollar IRA. If you have a traditional IRA, you will have to pay taxes on the income you withdraw. However, a Roth IRA will give you tax-free income after you reach 59 1/2 and meet the five-year rule requirements.
All it takes is one step to get the ball rolling. Write down your first action step that you plan to take right now, and you’ll be one step closer to the retirement you’ve always dreamed of.