Saving for retirement when you are young is just as important as when you start getting closer to your golden years. The longer you have investments in the market waiting for you to retire, the higher your likelihood of having enough to retire the way you want. Not saving for retirement in your 30s could cost you a lot of money and the opportunity to maintain your lifestyle once you stop working.
Importance of Saving for Retirement Sooner Rather Than Later
Saving for retirement is very important if you care about your lifestyle as you age. It is important to focus on this in your 30s because these are the ages when you’re likely starting to make more money. This enables you to save more than you ever have, but it also typically brings other financial distractions.
Your money will be pulled in many different directions, such as buying a house, paying for kids, saving for college for those kids, and wanting to take the lavish vacations you can finally afford. This is why many people put off retirement savings, thinking they will make more money and still have plenty of time to save.
While there is always time to save, and you should save no matter your age, putting retirement savings off can be detrimental to your long-term financial health. It can cost you money and lower your total quality of life later. If you don’t save for retirement now, you can risk retiring on time, much less early.
How Much it Can Cost You to Defer Saving for Retirement
Many experts suggest that most people will need more than $1 million to have a comfortable retirement 30 years from now. That number is based on the 4% rule, which states that you’ll withdraw 4% of your total savings every year to live off of. In order to hit that number, or more, you’ll need to start saving early.
You can use a retirement calculator to see how much you might save if you start now compared to how much you might save if you wait four or five more years. For some basic numbers, someone who saves $6,000 annually and starts at 35 years of age will have around $880,000 when they retire. If that same person had started saving at 30, they would have had $1.24 million. Waiting until the age of 40 to start lowers that savings to around $610,000.
As you can see, the longer you wait, the less likely you are to hit your long-term retirement income goals. Waiting just a few years can cost you hundreds of thousands of dollars and substantially lower your available funds in retirement.
What You Can Do to Save More for Retirement
Whether you’ve got a late start or are just looking for ways to increase your retirement nest egg, here are some things you can do to maximize potential savings.
- Increase Your Regular 401(k) Contribution
If you currently have a 401(k) through your employer, you’re likely contributing some amount regularly. You should consider increasing that amount, even a tiny bit, as it can significantly impact your long-term bucket. From our example above, increasing your contributions by just $50 per month can boost your retirement savings by around $62,000 over the next 30 years.
- Choose an Aggressive Asset Allocation
Many people don’t realize that they can choose their investment strategy. There are safer investments that traditionally return less than more aggressive investments. Since you’re not close to retirement age, you can be more aggressive in what you’re investing in. An aggressive portfolio can substantially impact your return if you can weather any potential market storm.
- Create a Retirement Plan
If you’re saving for retirement and don’t have a retirement plan, then you’re missing out on directions that could significantly impact how you save and what you invest in. The right retirement plan could help you drastically change how much you save each month to hit the right long-term number you need for your lifestyle.
It also can outline what you need to invest in at each age so that your retirement funds are maximized and protected. A professional advisor can help you with this if you’re unsure where to begin. Not having a plan is like throwing a dart into the dark and hoping it hits the right board.
- Open an IRA
An individual retirement account (IRA) is an additional retirement account that you can open to maximize your retirement savings. There are limits to how much you can invest into accounts with tax benefits, so opening more accounts is a great way to save money and invest it for your golden years. You can open an IRA or a Roth IRA, depending on what tax bracket you think you’ll be in when you hit retirement. This is something you should ask an advisor about if you haven’t already.
As you can see, waiting to save for retirement can cost you a lot of money. Creating a retirement plan, understanding how much you need to save, and then taking action to get to that number is the best way to ensure you hit your nest egg goals. The longer you wait, the more money you could end up losing. Saving while in your 30s is still an excellent time to get to the goal you need for retirement but waiting much longer could cost you.. However, there are steps you can take to try and catch up on your savings, such as choosing an aggressive portfolio or opening an IRA. The important thing is to make saving for retirement a priority now.