If you operate a business on tight margins or have an income that doesn’t leave you with much wiggle room, retirement may be the last thing on your mind in your 30s. However, the longer you wait to take decisive action, the harder it will be to meet your retirement savings goals.
So, what’s the answer?
First and foremost, you need a clear roadmap for your retirement.
Make a Plan That Works With Your Budget
It goes without saying that you have certain essential expenses that can’t be cut.
For most people, these essentials include food, housing, transportation, and healthcare — though there may be others depending on your specific circumstances. Once you’ve identified your expenses, it’s time to trim off the fat!
What does this mean?
It means cutting non-essentials out of your budget.
This doesn’t mean you can’t enjoy a few luxuries in your life. It simply means that, if you’re working with a tight budget, you’ll need to make room for retirement contributions.
Once you’ve figured out how much you can comfortably contribute, you can start to develop a plan for your retirement. If you have a 401(k), then it will probably form the basis of your retirement savings. However, just because you have a 401(k) doesn’t mean you shouldn’t look for other ways to build your wealth for retirement.
So, let’s look at a few ways to make the most out of your retirement plan while you’re still in your 30s!
Maximize Your IRA Contributions
Whether you have a Traditional, Roth, or some other kind of IRA, you should do your best to maximize your contributions.
For most people, the maximum contributable amount is $6,000 per year (as of 2020). If you can’t find an additional $6,000 in your budget, try to get as close to that number as possible.
The more you contribute now, the more you’ll have 30 years from now (or whenever you’re ready to retire).
Increase Your Retirement Contributions
Whether you have an employer-sponsored 401(k), an IRA, or some other kind of retirement investment vehicle, you need to develop an aggressive allocation strategy.
You don’t have to put half of your paycheck toward retirement savings, but you should try to create a budget that prioritizes your retirement.
For example, if you have a 401(k), an IRA, and a personal savings account, It may be wise to max out your contributions to the first two and put any remaining funds into your savings.
Implementing this kind of aggressive strategy now — while you’re in your 30s — will set you up to have a very comfortable retirement.
Consider Opening an HSA
A Health Savings Account (HSA) is a great way to reduce your tax liability, defer your investment growth and have tax-free distributions if spent on qualified medical expenses. This creates a trifecta of benefits.
As the name implies, an HSA is designed to pay for medical bills you incur during your retirement years. Thus, combining an HSA with a more traditional retirement savings account (and Medicare) will greatly decrease the cost of healthcare once you finish working.
**Pro Tip: HSA funds can be withdrawn penalty-free for non-qualified expenses after age 65
Review Your Employee Benefit Booklet
If you receive retirement benefits through your employer, make sure that you clearly understand what you’re entitled to.
Many employers offer 401(k) accounts, but not every employer offers contribution-matching. Knowing if your employer does or doesn’t could help you decide how much to put in your 401(k) and how much to allocate to other savings vehicles.
Some companies offer no retirement benefits, while others only offer benefits to certain employees. Be sure to review your employee benefit booklet to know exactly what you are — or aren’t — going to get at retirement.
Branch Out With a Side Hustle
As previously mentioned, it can be difficult to find room in your budget to maximize your retirement savings in your 30s.
Fortunately, the 21st century is the era of the “side hustle,” which is essentially another term for a second job or hobby that brings in additional income. The internet makes it much easier for people with certain skills (like writing, video editing, teaching, jewelry design, etc.) to open small businesses on the side and build a client base.
So, don’t be afraid to put your skills to good use and make a few extra bucks on the side.
The Bottom Line
When you’re in your 30s, retirement seems like something that’s a million years away. However, you’ll find that the years will pass quickly, especially if you don’t have a retirement plan in place.
There’s no time like the present, so if you can start implementing some of the tips above, the more you will be prepared when your retirement arrives!
To learn more about planning for retirement in your 30s. Schedule a meeting with the Crossroads Planning team today!