How to Save More in Retirement Planning in Your 30's | Woodbridge
01 03 2017
Retirement planning in your thirties? For some, that may sound routine. But the truth of the matter is, Americans are simply not saving enough for retirement. In fact, nearly half have saved nothing at all. But it's not a lost cause. Your thirties are a perfect time to set yourself up to both enjoy and fund your golden years.
If you haven't begun a retirement planning strategy, don't panic. We've gathered the information you need now, to get on the right track tomorrow.
Top 6 Ways to Begin a Successful Action Plan for Your Retirement:
1. Start with a 401(k): Chances are you've already begun contributing to your employee sponsored 401(k) plan. In a perfect scenario, this long-term financial instrument will span decades and grow with your goals and needs. As with any investment, the value will be exposed to both peaks and valleys, but your focus should always remain on the long term. In plain English, time is money. If you made a $5,000 contribution on your 20th birthday, and contributed nothing else over the course of your career, your balance would reach almost $160,000 on your 65th birthday. Alternatively, if you celebrated with the same $5,000 investment on your 40th birthday, it would value less than $35,000 at age 65. Now, of course, your retirement fund should not be contingent upon a single transaction.
So, how much should you be socking away?
Financial planners suggest that investors increase their contribution by one percentage point each and every year. That means millennials should earmark about 12% of their salary. Since incomes tends to increase over the course of our lifetime, planners generally make determinations based on paychecks that are on an upward trajectory. After all, annual incremental bumps will generate an even greater nest egg for your future.
2. Double down with a Roth IRA (RIRA): So, your 401(k) is up and running, and the future is looking bright. You've watched your savings grow, and you're feeling confident. But, will it be enough? Nearly 8 in 10 investors between the ages of 30 and 54 believe it won't be. And they are correct. The answer is to diversify beyond what you have stashed in savings accounts and your employee sponsored plan.
And a good place to start is a Roth IRA, which provides the added perks of tax benefits and flexibility.
With a RIRA, you save through after-tax dollars, and you won't pay income taxes on withdrawals. And that works in your favor, since you'll likely be in a higher tax bracket once you hit retirement.
In a perfect world, savings accounts and retirements plans are used for what they are intended for, your future. However, life tends to deliver the unexpected. Between now and then, you could encounter a health crisis, a layoff at work, or even the businesses opportunity of a lifetime. Roth contributions can be withdrawn penalty-free at any time. So if you are faced with a curve ball, a RIRA just might be the answer. However, there is one caveat, you must be at least 59 1/2 years old to access your earnings, but there are several exceptions that allow for earlier withdrawals. Education costs, some unreimbursed medical expenses, back taxes, and up to $10,000 for first time homebuyers all qualify.
3. Diversify through Mutual Funds (MF): Once you reach your thirties and have established the basics, it's a good time to branch out. Mutual funds allow investors to reach diversification through the purchase of a collection of stocks, bonds, and other securities. They are typically actively managed to try to beat the performance of an index like the S&P 500. A MF can be traded only after the close of trading each day. It has a minimum holding period and there are penalties for selling early. Fund holding are disclosed quarterly, and average annual expenses are 1.42%.
4. Put your Windfall to Work: It can be tempting to spend an unexpected cash flow immediately. Instead, take that tax refund, Christmas bonus, or sales commission and invest it in your future. A good rule of thumb is to designate your salaried income for your expenses, and earmark the extras for retirement. In fact, Uncle Sam has made it easier to save for the future. Tax payers can now direct deposit their federal and state refunds into qualified retirement accounts.
5. Plan for Healthcare Expenses: According to Fidelity Investments, a 65-year old couple retiring in 2016 will require at least $260,000 to cover medical costs throughout their retirement. That's why it's critical to plan ahead in your 30s. Why? At this point, you are likely pretty healthy, and have yet to incur exorbitant healthcare costs. Take advantage of your youth and health, and enroll in a high-deductible healthcare plan where you're eligible to draw on a Health Savings Account (HSA). An HSA is a financial product that allows investors to park thousands of pre-tax dollars every year. It never expires, and you won't pay taxes on your growing investment or when you access the funds. (As long as you use the money for qualified health expenses).
6. Leverage Investment Alternatives Like Real Estate: And finally, look beyond traditional investments. Real estate can be a meaningful way to achieve greater diversification. In our parent's generation, real estate investing was reserved for the wealthiest of the wealthy. Buy-in requirements were upwards of $100,000, and if you didn't socialize with the elite, you were left out in the cold. Recently, it all changed when legislative and regulatory action disrupted the default, and provided access to a new wave of investors. With as little as a few thousand dollars, you can take advantage of lending or real estate crowdfunding opportunities to achieve measurable returns for years to come.
Start Retirement Saving Now & Stress Less Later.Financial planning for your retirement may seem like a daunting task, but if you put in the time now, you can better prepare for the years ahead. As with any investment, it is critical that your profile for risk matches your portfolio. And remember, you have time on your side, small investments today will make a world of difference for your future.
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