It’s never too early to start preparing for retirement. Learning how to plan for retirement in your 30s is an excellent way to ensure financial security in your golden years. You can create an adequate retirement plan with a combination of variable and fixed income sources, you just need to find the right balance.
The first step in saving for retirement in your 30s is adopting a realistic view of your current financial situation before developing financial goals for the future. While saving and living on a tighter budget in your 30s can help simplify retirement planning, there are alternative ways to save for retirement that earns interest and won’t break the bank.
Life Insurance for Retirement Planning
Most financial planners recommend life insurance for retirement planning because it helps protect your family and their future if anything happens to you. Cash value policies like whole life and indexed universal life plans, aka “permanent” life insurance, are one of the best ways to save for retirement because they add stability to other investments with variable return rates. In simple terms, opting for universal or whole life insurance while you’re young provides two distinct benefits.
- Your policy builds cash value you can borrow against or withdraw later in life.
- It protects your dependents from financial trouble if you were to die unexpectedly.
Depending on when you purchase permanent life insurance, premiums vary. The earlier you purchase a policy and the healthier you are when you do, the cheaper your premiums will be. Additionally, if you use life insurance as a part of your retirement planning in your 30, your permanent life insurance policy will build cash value over time.
Best Ways to Save for Retirement
Contribution Strategies for Retirement Savings Accounts
Retirement savings accounts are one of the most trusted ways to prepare for retirement. Financial experts suggest setting up consistent weekly or monthly contributions, and the contribution is tax-deferred, so your tax liability for the year is significantly reduced if you “max out.” The 2022 IRS limit for annual contributions to an employer-sponsored 401(k) plan is $20,500.
Annual contribution limits for traditional and Roth IRA plans are smaller ($6,500), but the same philosophy applies. Contributing as much as possible to those accounts in your 30s will make your 60s and 70s more comfortable.
Open a Brokerage or Retail Trading Account
Opening a brokerage or retail trading account is an excellent option for people who are hitting their IRS maximum for 401(k) and other retirement accounts.
The rise of Robinhood and crypto trading platforms, like Coinbase, has given consumers the ability to buy and sell equities, bonds, crypto, and commodities. On the other hand, retail platforms, such as Fidelity, TD Ameritrade, and Schwab, offer managed portfolio solutions. For hands-off investing, you can even use Robo-adviser applications like Betterment, Weathfrong, and SoFi.There are dozens of options in this category.
Hiring a financial advisor is a good idea if you don’t want to manage your investments yourself. People making higher-end salaries in their 30s should seriously consider hiring a financial planner. There are also several online courses on investing for those who want to learn more before making that decision.
How to Save for Retirement without a 401(k)
Social Security and Fixed Income Planning
Social Security benefits are “fixed income” and become available as early as age 62. The problem with planning for Social Security benefits is that experts are still determining if those benefits will be available in 30 years. So, it is essential to explore other options just in case the Social Security Trust fund becomes insolvent before you retire.
As previously mentioned, life insurance and a well-funded 401(k) are excellent options. They produce enough income and cash value to pay bills and keep a roof over your head. The only obstacle to those is market volatility, which affects your cash growth and lowers your principal if you retire in a down market. The best solution would be to add additional income to delay disbursements as long as possible and let the market recover.
If you want safer options, consider investing in annuities that will pay you back in your retirement years. If you’re still uncomfortable with those, CDs and bonds offer low but safe returns on your investments.
Alternative Ways to Save for Retirement
Young Millennials face unprecedented financial challenges – Social Security is at risk, the market is volatile, inflation is steadily rising, and recession is on the horizon. However, those concerns are more pressing for 50-year-olds than those in their 30s. If you are starting to save for retirement in your 30s, try to look past the current economic circumstances and think long-term.
To start planning, evaluate your budget and cut expenses. Invest in permanent life insurance that builds a cash value. Max out your 401(k) or IRA contributions and don’t rely on Social Security as your only safety net.
At the end of the day, retirement planning hinges on long-term strategizing, and the time to begin is… right now.