A sound retirement strategy isn’t something that should be left until the night before your 65th birthday. In fact, learning the art of saving for retirement at 30 years of age, instead of waiting until later in life, can help you build an effective retirement investment strategy and protect you for years to come.
The obstacle most people in their 30s have when learning how to start saving for retirement is one of focus. What can they do to start saving for retirement? Where should they be directing their funds for maximum investment portfolio diversification? And how can they have fun in their 30s but still meet their retirement real estate investment goals?
Here are four tips for saving for retirement at 30 and reach your wealth-building goals, without having to live like a pauper.
4 Keys To Saving For Retirement At 30
1. Figure Out How Much You’ll Need
It’s hard to hit a target if you don’t know what that target is. And when it comes to retirement, it’s all about understanding how time and money can work together to create the financial security you desire when you retire, and then pinpointing the exact amount of money you hope to attain.
Now, there are many different kinds of retirement calculators out there. But one of the best — and most visually appealing — is the one from Vanguard. With its use of sliders and graphics, you’ll quickly see how much you need to start saving to ensure you live the life you want when you retire.
For example, if you’re 30 years old today, making $50,000 a year, and wish to retire at the age of 68, then you’ll need to, assuming an 8% return on your investments, save $9500 of your annual salary going forward (far more than the maximum 401K contribution of $5,000 currently allowed).
Of course, where you direct this savings — stocks, real estate, gold, 401K — will vary your results. But the key is to get a concrete number you want to strive for, and then make a financial plan to make that number a reality. The best part is, the earlier you get started, the less you have to save each year.
2. Realize Not All Debt is Bad
One of the biggest decisions people in their 30s have, when it comes to saving for retirement, is deciding whether to pay off debt or build up their retirement nest egg. And this is understandable, since most of us are taught from an early age that debt is “bad.”
But not all debt is created equal. That unsecured maxed-out credit card at 18% is far different from that student loan at 5%, which can be eventually be consolidated.
The key is to look at the rate of return. Will you get a better rate of return on your investments earmarked for retirement than you will for the savings from the annual rate of your debts? If so, then retirement investing should be at the top of your list of priorities. But if you have escalating, unsecured debt — such as a car payment or a credit card or even a collection — then you might want to pay off that debt, first, then focus your energies toward retirement.
3. Automate Your Savings
The real trick to saving for retirement, and not make it feel like a genuine hardship, is to set up systems in place that allow you to automate your savings, so money is set aside without you realizing it.
There are many apps and tools that allow you to do this, without giving it a second thought. One of the best is called Acorns, an app which “rounds up” any purchase you make to the closest dollar and then deposits that money into whatever type of account you choose. (Investment, savings, bond allocation, etc.)
Or you can simply set up automatic withdrawals that will take a specific amount of money out of your account, on a monthly basis, and deposit it into an account of your choosing.
And “savings” doesn’t just mean monthly income; some of the biggest saving for retirement benefits you’ can get are from “banking” larger proceeds: such as raises, tax refunds, any kind of large financial windfall.
4. Put Your Lifestyle on a Diet
Sure, those jet skis look fun and that daily five-dollar latte sounds nice, but the truth is most of us have much more room in our budget for retirement than we think. That’s because most of us have numerous (and extraneous) expenses which can, and should, be eliminated to build future wealth.
One of the easiest ways to do this is to simply look at your bank and credit card statements. Scan them carefully to look for opportunities where you can cut spending. Things like subscriptions, hidden charges, and memberships can eat into your savings, without you realizing it.
Don’t forget to also revisit things you consider “necessities,” such as cable TV or that high-end luxury car. By opting for a cheaper alternative you can put more money in your retirement savings, and get you that much closer to the day you can finally say “I quit” to the rat race.
“It Begins With a Single Step”
Saving for retirement at 30 (and beyond) is not about making huge sacrifices and depriving yourself constantly of things you’d like to spend your money on. It’s about realizing that slow, consistent savings — over time — can make a huge contribution to your retirement savings. And the more you can systematize your savings, and the less you have to consciously think about it, the quicker you’ll reach those retirement goals — no matter how lofty they may be.