In Your Thirties? Here's How to Maximize Your Retirement Planning

Experts recommend getting a start on your retirement in your 20s—but for many, it’s unrealistic to get started that young. Other financial aspects take priority, like making ends meet, paying bills and student loans, and saving for a home.

In your thirties, you may find yourself in a better position to begin saving for retirement. You may have accomplished other financial goals like building a solid emergency fund and paying down debt. With a few years of work experience under your belt and a steady job, you might find that you’re ready to start investing in a retirement account.

Wondering where to begin? Here are six tips that will help you build your nest egg.

1. Think about how much money you will need to meet your retirement goals.

While a lot can change between your thirties and when you plan to retire, your overall goals and needs should start to become clearer. Will you have your house paid off by retirement? Do you have kids that will need help with college? Do you and your spouse want to retire early?

While your main goal will be saving as much as you can for the next few decades, it doesn’t hurt to get a head start thinking about these different things. Keep your financial advisor in the loop so they can help you craft a plan that will allow you to meet your current needs and achieve retirement goals.

2. Max out your contributions.

Time is of the essence when it comes to investing. The more money you can put into your retirement accounts now, the more time it will have to grow. This is why it’s important to maximize your contributions as soon as you can.

Here are the contribution limits of common retirement accounts for 2022:

• 401(k) and Roth 401(k) contribution limits: $20,500 per year
• 403(b) and Roth 403(b) contribution limits: $20,500 per year
• IRA and Roth IRA contribution limits: $6,000 per year

Maxing your contributions is especially important if your company offers retirement benefits. Many employer-sponsored retirement plans—like 401(k)s—allow your employer to match your contributions to your retirement account, up to a certain amount. To make the most of your money, be sure that you’re investing enough to get all of your company’s matching contribution.

3. Invest in your own plan in addition to employer-sponsored retirement plans.

After you’re contributing regularly to your 401(k) plan, it might be time to consider an individual retirement account (IRA) that you start on your own. While contribution limits on IRAs are significantly lower than those of 401(k)s, the extra bit that you save each year in your IRA can make a big difference in retirement.

IRAs and Roth IRAs often come with more investing options, which will allow you to invest even more aggressively than your employer-sponsored plan may allow.

Should I start a Roth IRA before I max out my 401(k) for the year?

This is a very personal financial decision, and one that might require a financial advisor. There are two schools of thought:

1. A 401(k) should always be maxed out first because it’s pretax
2. A Roth IRA should be maxed out first because you won’t pay taxes on any of the earnings

The answer to this question depends on a few factors, including what tax bracket you expect to be in during retirement, what tax bracket you’re in now, and how much flexibility you want over your investments. Some split the different and invest in both equally—it really is a personal financial decision.

This much is true: if you have the ability to do so, always invest enough in your 401(k) to get your full employer match. It’s basically free money.

Which retirement plan is best for me?

A financial advisor or retirement planner is your best choice for finding a solid retirement plan that works best for you and your goals. They can also guide you in choosing investment options that will help you save when it comes time to pay taxes.

Technology has also made it easier than ever before to invest money. Apps and digital-first investment companies have made it possible to invest from your kitchen table. If you choose to invest with these companies:

• Only use apps from reputable companies with proven track records.
• Remember that time in the market beats timing the market. In other words, focus on saving as much as you can in solid investments, and don’t risk your hard-earned money on day-trading.
• Make sure your security for this account is tight.

4. Use your time wisely.

Retirement portfolios aren’t just a single type of investment. Instead, they’re typically a mix of stocks, bonds, and other financial products, each of which has its own level of risk and potential investment return. How your money is allocated in these various investments will change over time. The balance will shift from aggressive growth when you’re young to stable, income-producing assets as you near retirement.

This conventional wisdom tells us that the more time you have, the more aggressive you can be with your investment risk. Assuming that you retire at age 65 and you are currently somewhere in your thirties, your investments have somewhere between 26 and 35 years to grow.

This is plenty of time to invest in aggressive portfolios. The percentage can change depending on other circumstances, but a portfolio with aggressive allocation typically holds 70% or more of its value in stocks. Remember that there is no need to panic during economic downturns and market fluctuations, even if you see your investment value drop. Drops and rebounds are expected with aggressive investments. The important thing to remember is that your retirement account is a long-term plan.

5. Resist the urge to dip into your retirement savings plan.

You may also be hitting other financial and life goals in your 30s, like buying a house or paying for your children’s college education. These are not small purchases, and it can be tempting to dip into your retirement savings to cover the cost. While this may make sense in some situations, most financial experts recommend doing this only as a last resort.

By taking money out of your retirement account, you forego the tax-free growth and compounding interest that the money would have made. The $20,000 that you take out now for a house would likely be worth much, much more down the line in retirement. It’s always a good idea to consult a financial advisor before withdrawing money from your retirement savings.

6. Roll over your 401(k) if you change jobs.

Most people will undergo at least one career or job change in their thirties. When you leave an employer, you’ll have the option to cash out your retirement savings. While this may feel like a free windfall, this is rarely a wise move.

Cashing out your 401(k) can result in steep penalties and set you back significantly in your long-term savings goals. If you change jobs, opt for one of these three options instead:

• Keep your money in the existing plan (some employers won’t allow this)
• Roll the money over into your new employer’s 401(k)
• Roll the money over into a Roth or traditional IRA

This will keep your savings and investment growth on track.

Get Started on Your Retirement Investing

Retirement may feel like a long way off, but now’s the best time to start saving. Get started today by talking to a CFS* financial advisor who can get you on the right track with an investment strategy to meet your goals now and in the future.