Your 30s can be a tricky time to save for retirement. You might be more established in your career, but you probably haven’t hit your highest-earning years yet. You might be taking on major obligations like a mortgage or child rearing, and you might still be paying off student loans.
How do you balance the pressure of meeting existing obligations with your desire to save for a future that seems so far away? If you’re not sure, you’re in good company: 10% of millennials have nothing saved for retirement, according to the 23rd Annual Transamerica Retirement Survey of Workers. Another third have saved less than $50,000.
If you need help figuring out how to save for retirement in your 30s, here are some strategies you might not have considered yet.
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1. Start Good Habits
With inflation taking up a greater portion of your income while your wages remain stagnant, it’s easy to think of saving money as a luxury you can’t afford.
What your parents’ and grandparents’ generations could easily afford like buying a home or paying their way through college may be significantly harder to achieve now. But just because financial stability may be harder to achieve, doesn’t make it impossible.
If you can figure out ways to create room in your budget and invest the rest, you’ll give yourself some breathing room from constant money-related stress. Try to have a gap of at least 15% between what you spend and what you earn.
That may mean delaying having kids, living with roommates longer than you wanted to, riding the bus to work or continuing to drive a 20-year-old sedan. It might mean picking up overtime shifts or a few side hustles. It won’t be easy, but it will be worth it.
Once you have that 15% gap, make the most of it with automatic savings so you’re not tempted to spend what’s left. Keep it in a high yield savings account that you don’t see until you have an emergency fund and then invest it through payroll deductions in a 401(k) or automatic contributions to a Roth IRA.
The sooner you start investing, the greater the rewards you’ll have later in life.
2. Take Advantage of Time and Tax Bracket
You have two big things working for you in your 30s when it comes to saving for retirement that people later in their careers don’t: time and your tax bracket. Through the magic of compound interest, you can save significantly less money every month if you start in your 30s as opposed to if you start in your 40s or 50s, and still have the same amount in retirement.
How much less can you save by starting earlier? Let’s say John and Jill both want $500,000 when they retire at 65. John starts saving at 50 and Jill starts saving at 30. They both save in a diversified stock portfolio in a tax-efficient retirement account earning 10% interest.
Jill would only have to save $129 a month to reach her goal whereas John would have to save $1,197 a month to have the same amount of money at 65 as Jill. Starting earlier literally saves Jill $1,068 a month to have the same comfort in retirement as John.
During your 30s you’re also likely not in your peak earning years yet. This means that investing money in a Roth account like a Roth 401(k) if your employer offers it and a Roth IRA that you open on your own can be a smart choice.
Roth money is money that you’ve already paid taxes on before the money goes into the account. The money in the account grows tax free and is withdrawn tax free in retirement and for qualified expenses before age 59½.
One of the best things about Roth money is that contributions can be withdrawn without penalty at any time. If you’re sitting on a large amount of cash, putting a portion of it into your Roth IRA can make it still available to you if disaster strikes, but that money will be working for you and will never be taxed in the coming decades if you’re able to avoid tapping it.
3. Avoid or Pay Off High Interest Debt
The easiest way to pay off credit card debt is to never take it on in the first place. Always pay your balances in full every month if they’re currently bearing interest. A good rule of thumb is to avoid taking on debt over 5% interest and to aggressively pay down any debt over 7% interest.
If you’re currently carrying debt on a credit card, you need to view that as an emergency. Think to yourself that you’re effectively paying double for everything you buy that doesn’t go directly toward paying off your debt, especially if you’re only making minimum payments on a credit card with 25% APR.
Student loans are another tricky matter. If you have private loans with zero chance of forgiveness and high interest rates, it makes sense to knock them out. The interest you save is like a guaranteed investment return. If you can refinance into a lower rate (with little or no fees), you could pay off your loans even faster.
But you may not want to put all your extra income toward paying down loans. While paying down a student loan at 5% interest is a guaranteed 5% savings, don’t do it at the expense of investing. If you’re eligible for a 401(k) match of 5% you’ll get a guaranteed 5% rate of return in addition to tax savings and long term investment returns, which are typically over 8% in a low cost index fund.
The lower your rate—and if you have fixed-rate federal loans—the more it makes sense to stretch them out with an income-driven repayment plan (like the new SAVE plan). While you’re making minimum payments, cross your fingers for retroactive income-driven repayment credits. Let inflation punish your debtors while you benefit from decades of growth in your Roth IRA.
4. Minimize Childcare Costs
If you’re all about that child-free life, skip this section. For everyone else, childcare costs—whether through lost income or paying a provider—are a huge concern. The national average cost for a year of childcare in 2022 was close to $11,000, according to Child Care Aware of America.
Here are several ways you might be able to keep this cost down or find the money to pay for it.
- Workplace benefits. Check to see if your employer offers on-site daycare, family stipends or dependent care savings accounts.
- Employee stock. Consider selling your vested company stock awards or exercising nonqualified stock options.
- Schedule adjustment. If you’re able to switch to a flexible job, you and your co-parent could each work more hours over fewer days and have three days off per week instead of two. One parent works Monday to Thursday; the other works Tuesday to Friday. Now you only need child care for the three days when you’re both working.
- Child tax credit. Put this money ($2,000 for most households) toward your childcare budget.
- Other tax credits. Claim the earned-income tax credit or savers credit if you qualify.
5. Don’t Shortchange a Stay-at-Home Parent
Expecting parents often do a little math and find out that it doesn’t make sense for one parent’s check to go toward paying for daycare if that parent can stay home. While this may be true in the short term, if the main reason for your decision is financial, be sure to remember the big picture.
A few years of spending all of your net paycheck on childcare may still be worth it financially in the long run. Depending on your industry, leaving the workforce can have devastating effects on your career. With the rise of AI implementation, leaving the workforce for five years in 2023 may mean being unable to adapt and find a job in 2028.
A stay-at-home parent should be mindful of the long-term implications of not working, including lower career earnings, lower 401(k) savings and lower Social Security earnings. These can create financial instability later in life, especially if there’s a divorce. Leaving the workforce voluntarily to care for a child also makes you ineligible for unemployment, even if you can’t find work again in a recession.
If your household does choose to have a parent stay at home, be sure to open and contribute to a spousal IRA to ensure that their retirement savings stays on track.
6. Watch Out for Lifestyle Inflation
As you start earning more in your 30s, it could be easy to start spending more, too. To some extent, this is okay. You want to reward yourself for your success, within reason. But spending 100% of every raise won’t help you save for retirement.
Question social norms around how other people spend their money and what people classify as “needs.” Social norms create cognitive bias. They cause you to do irrational things because other people are doing them.
While having a bigger house with a modern kitchen and a bedroom and bathroom for each child sounds nice, it’s not a necessity. Going on nice vacations, driving newer cars, getting nice Christmas and anniversary presents are all luxuries you may not be able to afford.
Prioritize what actually matters to you and make sure that you don’t end up living paycheck to paycheck as
a result of indulging in every opportunity to treat yourself.
7. Consider Insurance
What does getting properly insured have to do with saving for retirement? It’s this: If your financial safety net isn’t big enough, you’re going to tear a gigantic hole in it when you fall. Whatever you’ve saved for your future self will be gone at the first stroke of bad luck.
Insurance costs pennies on the dollar for the major losses it can protect against, like the cost of brand-name cancer drugs, an inability to work or getting sued. Even when you may feel like you don’t have a lot to protect—or the money to spend on insurance—this coverage is the foundation of your financial pyramid.
Get what you can through work, but be mindful that group life and disability coverage often terminate the day your employment ends. Here’s what most people should consider to be well-protected:
- Comprehensive health insurance with prescription drug coverage
- Long-term disability income insurance
- Homeowners or renters insurance
- Auto insurance
- Umbrella insurance
Shop around for price and coverage. Do your best to get fully insured and choose affordable deductibles while working within your budget. And don’t overinsure yourself. If you have no dependents and robust savings you may not need a big life insurance policy. If you’re only spending $2,000 a month and your Social Security Disability estimate is over $2,000 a month, you may not need a $5,000 a month private disability insurance policy.
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