Healthy Retirement 101: What to Do in Your 30s
By the time you reach your 30s, you’ve probably sown many of your wild oats, leaving your mind more focused on practical considerations like settling down, buying a home and raising a family. You might also want to keep your eye on a plan for retirement. You may have started one in your 20s, but if not, it’s certainly not too late to catch up now.
Decide on the Percentage You'll Save
Figuring out how much you can comfortably save each month is usually a good starting point for achieving a retirement plan. Kiplinger recommends stashing 15 percent of your earnings by the time you reach your 30s, although Wells Fargo suggests earmarking only 10 percent. “At the very least, you’ll want to set aside no less than 5 percent,” says John Bartuccio, a certified financial planner with Lincoln Investment Planning in Wyncote, Pennsylvania. If your employer contributes to your 401k, you don’t necessarily have to save another 5, 10 or 15 percent on top of this. If your employer’s contribution is 3 percent, you could save an additional 2, 7 or 12 percent toward your goal. CBS MoneyWatch suggests that you aim for retirement funds totaling roughly five times your annual pay as you inch closer to your 40th birthday.
Diversity Works in Your Favor
If you prefer to play it safe, you can put your savings into your 401k or an IRA. But Kiplinger indicates that you’re in a prime position to diversify your portfolio in your 30s. One way to do this is to invest a little in mutual funds and exchange-traded funds, or ETFs. They don’t cost a lot and they’re reasonably safe investment vehicles. You could also branch out into stocks. Bankrate recommends devoting 80 to 90 percent of your savings to stocks, but this would depend on your stomach for risk. Stocks have the potential to grow your savings significantly over the long haul, and you probably have 30 years to go before retirement, which can let you withstand a dip or two in the market. No matter how you invest, you might want to review your money's performance regularly.
Expect the Unexpected
While you’re saving, you might also want to tuck away some easily accessible emergency cash to cover situations like an unexpected job loss or taking unpaid leave when you have a child. Bartuccio recommends saving three to six months’ basic living expenses. You might also want to look into buying disability insurance or seeing if your employer offers it. Should deal you a surprise financial blow, these measures won’t help you to keep saving toward retirement, but at least you won’t have to dip into your retirement savings to make ends meet.
Don't Forget the Kids
If you're tempted to let your kids' college education costs take precedence over retirement planning, consider that your children can get grants, loans or scholarships for school when the time comes. You can’t get the same help with retirement – you’re on your own. John Risley, president of L.O. Thomas & Co., an investment firm in Linwood, New Jersey, recommends starting up a 529 plan for educational purposes. Every state offers some version of this college savings plan, allowing you to deposit funds that will continue to grow until your child needs the money for school. The beauty of this option is that you can withdraw the money without any tax liability when your child needs it, provided the money is used for educational purposes. You won't have to pay taxes on the growth. You name your child as the beneficiary of the account, but you retain control over it. "You own the account, not your child," Risley says. "This means that he can’t throw a monkey wrench into all your planning by taking the money to buy himself a sports car or a diamond ring for his girlfriend.”