Your parents have finally reached a great milestone: they are transitioning into retirement. Congratulations are well deserved on their part, but it also presents an opportunity for you to assess your own situation to make sure everything is in order and you’re on track for your own retirement.
Even if it seems like retirement is just a distant dream, you’ll want to get started now to make sure you and your family are secure when you’re ready to stop working.
How Much You Should Have Saved in Your 30s
There isn’t a hard-and-fast rule as to how much money you should have set aside for retirement in your 30s. You are at the age, though, when you should start thinking about what you want your life to look like as you get older. Do you see yourself having kids? Would you like to travel when you’re older? Are you going to retire as soon as humanly possible, or would you want to work into your old age?
Once you’ve figured out these questions, you should have a better idea of what your retirement will be like. A financial advisor can help you figure out how much money you’ll need to have saved for the retirement you want and show you if you’re on track or not. Once that’s done, you can see what adjustments you need to make in order to meet your goals.
With that in mind, consider these steps to check in on your own retirement savings progress:
1. Communicate with Your Spouse
Retirement comes with change, and your parents’ retirement could also impact your life. For example, now that your parents are retiring, are they planning on spending more time with their grandchildren? Whether it means hosting the grandchildren at their house or spending more time with them in your home, your parents’ retirement could impact the routine your family has fallen into.
In addition to discussing what your parents’ retirement could mean for your home life, you should also start having conversations with your partner about your own retirement plan. One factor to discuss is how the reduction in your income will affect your partner. If you and your spouse are both financially and emotionally ready for it, you’ll be more likely to enjoy a fulfilling retirement together. If your spouse intends to continue working for many years, your retirement may be much lonelier than you expected. On the other hand, retiring at exactly the same time can be both a financial and a psychological shock. Now is a great time to start thinking about the best timing for each of you so you have a timeline to work toward in the years to come.
2. Update Your Insurance
Now might be a good time for you to reassess your insurance needs. Look at your current policies and potential future needs for things like life, long-term care and disability insurance to help safeguard your financial future.
When it comes to disability insurance, most employers offer short-term benefits, but many medium- to large-sized companies provide long-term benefits for up to five years, and sometimes even for your lifetime. Check to make sure you’re covered and if that coverage is transferable if you ever leave the company. If not, and you can afford to, consider buying disability insurance on your own. It’s a similar story for life insurance. Many employers offer it. But if you’re out of a job, you lose coverage.
3. Ramp Up Retirement Savings
Maximize your 401(k) sooner rather than later. Ideally, you’ll make the maximum allowable contribution each year to an employer-sponsored fund such as a 401(k). For 2020, that’s $19,500. As you move up the career ladder, you might want to put raises and bonuses into your retirement savings instead of spending them. If you can’t afford to stash all your pay increases into retirement funds, gradually increase contributions over time. You won’t miss the money if you slowly increase savings.
Even incremental 1% increases can make a big difference in the long run. For example, a 30-year-old who saves 6% of a $50,000 salary each year, or $3,000, will have banked over $800,000 by the time they are required to start withdrawing money from their 401(k) at age 72 (this assumes an 8% annual growth rate). If that same person boosted their yearly contribution by just 1%, or $500, they’d have almost $950,000. That’s a significant difference.
If you’re already putting as much as you can into a 401(k) or other employer-sponsored fund, pat yourself on the back, then look into opening a separate account such as an IRA. In 2020, individuals under age 50 can save up to $6,000 in a Roth IRA or Traditional IRA. The greatest money-making asset anyone can possess is time, so younger people should take advantage of the decades of compounding available to them.
4. Reassess Your Risk Tolerance and Asset Allocation
It’s not enough to just save. You also need to keep an eye on existing retirement assets to ensure you’re not squandering opportunities for growth. In your 30s, you aren’t so close to retirement that you need to be incredibly conservative in your investment strategies. Financial advisors generally agree that you’ve still got enough time that you can be more aggressive than you would be if you were 50 and looking at retirement in the next decade. Look at the options offered by your retirement plan and create a mix of investments with varying levels of risks that align with your personal situation’s risk tolerance.
The important thing is to stay focused on your goals during market volatility. Equity markets rise and fall. Declines are tough, but they are normal. Young people have the time to weather a setback and wait for a rebound. The thinking behind this is that you might suffer some short-term losses, but in the long run, there is a better chance that these investments will give you the healthy returns you want to fund your retirement lifestyle.
6. Contribute to an HSA
A health savings account (HSA) is a medical savings account available to those enrolled in a high-deductible health insurance plan. Your contributions are made pre-tax, and withdrawals for qualified medical expenses are tax-free. For 2020, a single person can contribute $3,550 and a married couple, $7,100. Keep this in mind during your company’s open enrollment period if you are employed.
The retirement savings aspect is that the funds contributed can be carried over from year to year. There is no “use it or lose it” feature like with a flexible spending account (FSA). HSA funds can also be invested in mutual funds and other investments for long-term growth. If you can pay for out-of-pocket medical costs from other sources while working, your HSA savings can be used to cover qualified healthcare costs in retirement, which continue to rise.
Consult a Retirement or Financial Expert
If you want to build a rock-solid financial strategy, you might want to meet with an experienced financial planner. An expert’s advice about insurance, debt repayment, projected expenses, retirement plans, tax planning, saving for college costs or other financial vehicles can be invaluable.
However, make sure you visit an adviser who won’t try to push certain products for a commission or financial gain. Ask friends, relatives and colleagues for recommendations about reliable and effective planners in your area.
The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual.
MBA, CFP® Arthur has an extensive professional background including serving in the United States Air Force, 10 years as a social worker and more than a decade of experience in the financial services industry. Using this knowledge of long-term care, investments and insurance, Arthur specializes in providing comprehensive financial guidance to clients to help simplify their financial lives. In his free time, Arthur enjoys reading, biking through Central Park and going to movies. He lives on...Read More