If you’re in your 30s and you’re actively working on a retirement plan, in many ways, you’re already ahead of the curve.
Saving for retirement requires giving yourself plenty of time—decades, in fact. You need to think about expected costs, but also those unexpected costs in retirement.
The following are some things to know when you’re in your 30s and working on a long-term financial plan that includes retirement.
Your Emergency Fund Is Still Your Priority
Whether you’re in your 30s and you’ve already started saving for retirement or not, your top priority should always be making sure that you have a comfortable emergency fund.
The pandemic probably taught many of us just how many unexpected risks and downturns could be lurking just around the corner, at the personal level and also the larger economic level.
When you have an emergency fund, then you can start building on that and integrating more advanced retirement savings strategies.
You shouldn’t, however, be putting money into retirement accounts until you have that in place.
Aim to have enough money to cover at least six months of expenses. If you have kids or own a home, an emergency fund is perhaps even more important to have.
Along with that, if you have high-interest debt, working to pay that off is actually an investment. You’re saving money, and you’re working to remove debt that can weigh down other financial goals you have for yourself.
Boost Your 401(k) Savings
Beyond the basics above, when you’re in your 30s, if you can, make the maximum allowable contribution to your employer-sponsored 401(k) each year. If you can’t make the maximum contribution, make as much as you can.
Work toward gradually increasing your contributions over time. If you’re worried about missing the income, the more incrementally you add it to your retirement account, the easier it will be.
Even a 1% increase, incrementally done over time, can make a big difference long-term.
If you already have a 401(k) and you’re putting as much as you can in, you should also think of opening a separate IRA.
In 2020, people under the age of 50 were able to save up to $6,000 in a traditional or Roth IRA.
Your earnings grow tax-free on the investments you put into a Roth account.
Basically, when you open a Roth IRA, you’re taking advantage of potentially decades of tax-free compounding interest. You can grow a Roth as long as you want, but there are income limits on contributions.
Have an Aggressive Portfolio
When you’re in your 30s, your investment strategy can be riskier and more aggressive than someone who’s older. If something happens and there’s a downturn, you have a lot longer to weather it, and a rebound will eventually come.
In your 30s, consider having anywhere from 80 to 90% of your assets in different stocks.
Then, when there’s volatility, stay the course.
If you’re someone who has a hard time with risk, then just don’t look at your retirement accounts unless you absolutely have to. Train yourself to avoid them, particularly when you know things are probably down.
Be Careful If You Change Jobs
It’s not uncommon at some point in your 30s to change jobs. However, you shouldn’t decide to cash out your 401(k) from your previous employer.
If you cash out before your 59 1/2, you’ll pay income taxes and an additional 10% penalty. That can mean you pay as much as 37%.
Instead, roll over your 401(k) into an IRA, and then invest that.
Also, be aware of what your employer’s guidelines are for eligibility for full benefits.
This is known as vesting. If you have a 401(k), you might be able to keep 20% of the contributions your employer made after a year, but you’ll have to then continue working until you’re fully vested.
Consider Long-Term Disability Insurance
When you’re in your 30s, you may feel somewhat invincible. The reality is, no one is.
It’s a good idea if you haven’t already done so to invest in disability insurance. That way, if you do get sick or hurt and you can’t work for a period of time, your insurance will kick in and replace anywhere from 60 to 70% of your income.
Your employer may offer this as a benefit, or you can buy it on your own.
Your 30s are a time to make sure you’re secure with an emergency fund, focus on paying off expensive debt, and even more than that, developing a retirement savings strategy with a fair amount of risk.