The decade following your thirtieth birthday is full of excitement and change. Indisputably, you’re an adult. You may even be acting like one with a spouse, a pet, and, perhaps a child of your own. While high school seems like a long time ago, retirement feels even further away. But retirement planning in your thirties is an important goal. Here are three considerations:
Your Income and Expenses Are Both Probably Higher
Along with the possible arrival of your growing family is, in all likelihood, a growing household budget. That’s normal. After all, the amount you spent on groceries to feed a family of two isn’t likely to work once your children discover solids. The size of your home is likely bigger than it was prior to children and, therefore, so is your mortgage and real estate taxes. All of this is to be expected.
On the other hand, you’re probably making more money than you were as a twenty-something. You’ll also get some of the cost efficiencies of living with another adult, should you choose to do so. Your increasing family might also save you some money at tax time. Taken on the whole, all these changes may mean it’s just as challenging to save in your thirties as you found it to be during your twenties.
It Won’t Get Easier – So Make Yourself Start Now
If you’ve been hoping that saving would be easier by now, yet haven’t begun to save for retirement by your thirties, time is now critical. Every year you delay now may affect not only when you’re able to retire, but also what your retirement will look like. If you haven’t yet created an IRA, do so. If you haven’t yet participated in a 401K, now is the time to begin.
If you have contributed to an IRA, can you contribute more this year? Can you make your contribution earlier in the year to take maximum advantage of the tax-deferral benefits? If you’ve been participating in your 401K plan, ensure that you’re aware of your vesting schedule before you leave your current job. Leaving without taking your employer matching contribution could mean the forfeiture of thousands of retirement planning dollars.
Keep Focused on the Long Term
Given you’re twenty or more years until retirement, you’ve got a very long-term time horizon for investing. This means that bulk of your retirement money should be invested in stocks (or mutual funds or ETFs that are invested in stocks). Despite the increased risk that is associated with stock market investing, stocks offer the greatest long term potential for your money. With over twenty years to ride out the expected fluctuations, you can benefit from the higher expected returns. Keeping all your money in the bank leaves you with another risk: one that the purchasing power of your money will not keep up with inflation, let alone grow enough for you to retire comfortably.
