How to Start a Retirement Plan in Your 30s

If you’re in your 30s, it’s definitely not too late to start saving for retirement. Sure, it would have been better if you had started in your 20s, but nobody’s perfect. You can begin putting cash away now and build up a healthy nest egg for later on in life.

Here’s how to start a retirement plan in your 30s.

Set Your Expectations

It’s important to know that you’re probably going to spend at least 20 years in retirement. That means you’ll have to ensure that your retirement portfolio can support you for at least that long.

Once you understand that, then you need to map out your retirement goals. How “well” do you want to live in retirement? Obviously, the better you want to live, the more you’ll need to contribute to your 401k or 403b retirement plan.

Once you’ve established your goals and determined what you’ll need, it’s time to start the formal retirement planning process. It’s going to require some level of financial discipline to put money away for your golden years with every paycheck. However, if you stick to it, you’ll likely be rewarded handsomely when you reach age 65.

Don’t Forget About Compounding Interest

If you’re not familiar with the concept of compounding interest, you should know that it’s a marvelous financial phenomenon that works to your advantage.

If you put $1,000 into a savings account, you’ll earn interest on that $1,000. That interest will be deposited directly into your savings account as well. Now, if you leave that interest there, then you’ll start earning interest on the interest, plus the interest on the initial $1,000 that you left in the account. That process continues as long as you don’t touch the money in the account and it’s a fantastic way to build wealth as your money literally works for you as opposed to you having to work for your money.

Don’t Neglect Employer Contributions

Your employer might offer you free money. Free money is good.

Usually, your employer will offer you free money in the form of matching contributions on your 401k deposits, up to a certain percentage. For example, if you contribute 10% of your pre-tax income to your 401k, your employer might match up to 5% of that contribution. That means you’re effectively contributing 15% of your income to your 401k, but you only have to pay 10% of that figure. So you’re getting free money.

Set Up an Emergency Fund

Even though this article is about retirement, it’s important that you set up an emergency fund so that you’re prepared for extraordinary expenses that pop up every now and then. You would hate to have to raid your retirement savings in case a big-ticket maintenance issue for your home or a medical emergency pops up and requires a significant out-of-pocket contribution. It’s best to plan for retirement while still setting up an emergency fund.

Planning for retirement in your 30s might seem fairly complicated. However, with just a little bit of input from a good retirement calculator and a little knowledge about finance, you can be well on your way to establishing financial security for your sunset years.