The saying, “The earlier, the better,” when it comes to saving for retirement couldn’t be any truer. The idea is simple: the longer your money has to compound and grow, the more of it you will have to support you in retirement. With Americans’ retirement savings statistics proving more than bleak in the present and past years, solidifying a smart savings strategy early on becomes all the more critical. If you’re looking to save $100,000 for retirement in your 30s, here’s what it will take.
- Know how much you will need to retire. The first step in being able to save $100,000 for retirement in your 30s is knowing exactly how much you will need to retire. That number is certainly a great one to shoot for during the young adult stage of life, but it is better to set actual goals for yourself along your route to achieving that ultimate number.
- Save at a high rate. Increasing your savings rate may put you a little out of your comfort zone, but it is necessary if you want to save $100,000 for retirement in your 30s. Specifically, experts suggest saving 15 to 20 percent of your annual income. If you make $45,000 at age 25, 15 percent of that is $6,750 per year ($562.50 per month). Considering you earn a 7 percent rate of return on your money, in 10 years your money will grow to $98,490.44—that’s almost $100,000. Considering your annual income increases over those 10 years, and you continue to save 15 to 20 percent of your income, you’re well on your way to saving $100,000 by age 35.
- Take advantage of employer contributions. If you are fortunate enough to be offered a 401(k) or similar via your employer, use it to your advantage. If your employer offers to match your contributions, maximize the match to accumulate what is essentially free money for your retirement. If you are considering changing jobs, be aware of your employer’s vesting schedule. Until you are vested, you are not allowed to take employer contributions with you to your next position.
- Save automatically. Set it up so that a portion of your money goes directly into your savings account before you even have a chance to consider spending it elsewhere. A 401(k) does this by automatically withdrawing a portion of your paycheck each month. You can set up automatic transfers from your checking account to your IRA, or even from your checking account to a short-term savings account to be used as an emergency fund, for example.
- Invest where there is high growth potential. When you are younger, you have more time to make up for losses that you may endure in higher-risk investments. In other words, you can afford to take risks in your 30s that you cannot afford to take in your 60s. Whatever level of risk you decide on, make sure it is a level of risk you are comfortable with.
- Look for tax breaks. There are several tax breaks made available to U.S. workers to help them save for retirement. Retirement accounts like 401(k)s, traditional IRAs and Roth IRAs each come with their specific set of tax rules that can work to your advantage. With a 401(k) and IRA, your money grows untaxed until you take it out in retirement. With a Roth IRA, you pay taxes on your money up front, but then you are able to withdraw it tax-free in retirement.
- Watch out for fees. Be aware of the fact that some investments may be associated with high fees, which can eat into your retirement savings before you realize it. Opt for funds with low-to-no fees in order to maximize the amount you are setting aside for retirement.
If you’re wanting to set a savings goal for yourself in your early working years, look to save $100,000 for retirement in your 30s with these tips! Stay tuned to Ty J. Young Inc.’s Retirement You Earned blog for more insight into life in your retirement years. To learn how you can maximize the amount of income you receive in retirement, call our knowledgeable Ty J. Young Inc. advisors today at 877-912-1919.