When it comes to saving for retirement, the sooner you begin to invest, the better. Ideally, you should start saving for retirement in your 20s, but there’s always time to get started. While you might need to be more strategic with your saving, there are plenty of ways to kickstart your retirement plan. The tips below will help you get started on savings, even if you’re starting a little later in life.
Consider Opening a Roth IRA
The maximum amount you can contribute to an IRA varies per year but usually varies from $4,500 – $6,000. They are simple to open and allow your money to grow tax-free. Your earnings can grow as long as you want and you’ll never be forced to cash out after a certain amount of time. Withdrawals are also tax free, assuming you take them after age 59-½ and the account has been open for at least 5 years.
Prioritize Your Spending
You might have been able to get away with more nights out and spending half your paycheck on items you didn’t need in your 20s, but that’s not possible in your 30s. Without a retirement plan in place, you need to prioritize your spending on what truly matters.
Analyze your finances and see where you can cut spending to start contributing to a retirement fund. Some people use what’s called the “50/30/20” rule to save well while also maintaining balance in life. This means spending 50% of your paycheck on needs, 30% on wants, and 20% on savings.
Consistently Add to Your 401(k)
For many people, it makes sense to make the maximum allowable contribution to their 401(k) plan. If you can’t afford to do that immediately, you might dedicate a small portion of each paycheck to contribute to your 401(k) account. As you become more financially stable, you can gradually add more each paycheck until you reach the maximum amount each year.
Create an Emergency Fund
Nothing derails your finances quite like emergency expenses. That’s why it’s essential to create a fund dedicated solely to those unforeseen expenses. To start, you may want to create a separate account from your savings and retirement funds and add $500 – or if this is too much, add whatever amount you can afford. This helps create a stable base to which you can add. As a rule of thumb, it’s best to have 3-4 months’ worth of income in this account at all times just in case the worst-case scenario becomes a reality.
Pay Off Your Debt First
Many people in their 30s are starting to build or expand their families. However, many are still trying to pay off their own debt. You may want to focus on paying your school or credit card debt before starting a college fund for children. It’s often best to pay down existing debt before worrying about funds like these that won’t be needed for many years to come.
This information is provided for informational purposes only and should not be construed as a recommendation to purchase any product or investment. Always consult with your own financial professionals for more information. Investing involves risk, including possible loss of principal. Insurance guarantees are backed by the financial strength and claims-paying ability of the issuing company. We do not offer investment, tax or legal advice.