Three tips for retirement planning in your early 30s that you don’t want to ignore
When you are in your 30s, you might look at your retirement portfolio and find yourself concerned that it is not growing as much as you had hoped. Maybe you have not been able to contribute as much as you have liked. Maybe you started contributing later in life. Either way, it is important to remember that it is never too late to create a strategic plan for your retirement, and a road map for how to navigate life’s changes as you get there.
Here are three tips to help you get started:
1. Ramp up your 401(k) savings
For many professionals in their 30s, the main source of retirement savings is a 401(k). If you are a working professional, you have probably been investing in your 401(k) for a while. Now that you are in your 30s, it is time to consider ramping up your investment.
As of 2020, investors under 50 can contribute as much as $19,500 annually into their 401(k). When you first started your career, you might not have earned enough to max out your contribution limits and live comfortably off the rest. However, if you have advanced in your career by the time you’ve reached your 30s, you should be earning more than enough to be able to increase your contributions and reach your limit. In other words, at this point in life you should not miss withholding another percent or two from your salary to defer to your 401(k).
2. Invest in an IRA
Contributing as much as you can into your 401(k) is a great way to build up your nest egg, but you should not stop here. You should open up an IRA account to create further investment options and diversify your strategy. A diversified investment strategy can help your investments stay more secure during a volatile season, and it may even increase your overall returns by the time you are ready to retire.
IRA accounts are different than a 401(k) in a few different ways:
- You have access to a larger selection of investments with an IRA.
- You can avoid the administrative fees associated with many 401(k) accounts.
- Your annual contributions are much more limited than a 401(k) at $6,000 if you are under the age of 50.
There are several types of IRA accounts you can choose to open. The two most common are the traditional IRA and the Roth IRA. With a traditional IRA, you make tax-deductible contributions but you must pay taxes when making withdrawals during retirement. With a Roth IRA, you make taxable contributions but do not pay taxes when withdrawing. There are other differences between these accounts that may make one more beneficial to you than another, so you may want to talk to a financial professional for guidance.
3. Take a little risk
Many factors contribute to how much you are willing to risk in your investment, including how much you have saved, how much you earn and how much debt you have. However, investors in their 30s should generally have a higher risk tolerance than older investors. This is because younger investors have a longer time frame before retirement, meaning they do not have to worry as much about short-term market volatility as someone who is close to retirement.
Someone in their 30s who makes more conservative investment decisions with their 401(k) or IRA might earn a safe average annual return of 4%. But, by taking more risks, you can have the potential to earn higher returns of 6% or more by the time you are ready to retire. Of course, no one can predict the future and everyone’s situation is unique, so take the risks you are most comfortable with. Just know that it is generally safer and encouraged to take more risks as a younger investor.
Saving for retirement with the assistance of a ProVise financial advisor
If you are in your early 30s, you still have a long way to go before retirement, which means you have a lot of options ahead of you for how to manage your retirement investments. This can be difficult for you to navigate on your own when you are focusing on your career or your family, but a CERTIFIED FINANCIAL PLANNER™ professional can stand by your side to act as your guide in the financial landscape.
At ProVise Management Group, our certified financial advisors can review your current circumstances and your retirement goals to develop a strategy that helps you meet them. We help to navigate the hard stuff, such as how much to save or how much to contribute, so you can focus more on your life now.
We provide plans at a fiduciary standard of care with an unconditional money-back guarantee if you are unhappy with your written plan. Simply return your written plan to us and we will refund 100% of the fee paid.
Are you ready to talk to someone about helping you reach your retirement goals? Our team is here for you. Contact ProVise today to schedule a complimentary consultation.