You don’t need to save a huge amount of money right now, but you do need a plan to start or continue saving regularly in the future.
Have you recently turned 30? If so, you probably already know that this is a busy time in life. Your career path is often solidified during this time. Kids might be on the way (if they haven’t already). You might be in the process of buying a home.
But the reality of eventual retirement is looming.
That’s a lot to think about, especially when it comes to paying bills. In fact, it’s easy to get overwhelmed with the present and not be able to fully plan for the future. It’s also easy to convince yourself that a fully funded retirement account is just too far away to even consider saving.
The good news: The average 30-year-old hasn’t saved much yet, nor does he or she need to. The majority of personal wealth is built during the last third of your working life, when you’re likely to earn more than you do now.
It gives you a rough guide as to how much you should be saving for retirement at this stage in your life.
Retirement savings goals for age 30
What’s the magic number for a 30-year-old? It depends. But assuming your goal is to maintain your current standard of living, you should have saved roughly the same amount as your current annual income. For example, a 30-year-old making $50,000 a year would ideally have at least $50,000 saved for retirement at this point. A 30-year-old making $100,000 a year would have $100,000 in their retirement accounts at this point.
In any case, this is the rule of thumb suggested by mutual fund giant Fidelity, with the same goal also being suggested by brokerage Edward Jones and fund companies. T. Rowe Priceand several other financial companies.
Incidentally, this is just the midpoint of a relatively broad range of goals, so don’t worry if you’re not quite there: Edward Jones and T. Rowe Price both agree that you could probably retire comfortably on half that amount (or even less).
Incidentally, most 30-year-olds likely aren’t even reaching the recommended goal: A recent Vanguard report on the subject found that the average balance in a retirement account for people ages 25 to 35 was less than $38,000 as of the end of last year. And that’s just an average; the average balance in these accounts is much lower, just under $15,000.
The good news is that even if you’re in your 30s and haven’t yet saved for retirement, it’s not too late.
When the coins pile up
Maybe at the end of the month you feel like you have nothing left to save for retirement (especially with today’s rising real estate prices…). goodOr, if you’re already saving something, you might feel like you can’t do more.
But take a step back and take just a few minutes to take an honest look at your spending habits. Could you cut down on going to a restaurant to just one day a week? Do you really need cable TV, when there are so many free or low-cost alternatives available today? For example, increasing your car insurance deductible from $500 to $1,000 could significantly lower your premiums.
None of these actions, or any others like them, are life-changing in themselves, but taking a few of them together can add up to thousands of dollars in savings per year — a significant amount over time.
The graph below speaks for itself. By investing the aforementioned $2,000 per year (about $170 per month), S&P 500 If you invest in an index fund every year and average about 10% return per year, you’ll have over $300,000 left after 30 years.
Data source: Calculator.net. Graphs by author.
And if you can increase your investment to just $3,000 a year ($250 a month), you should have nearly $500,000 in 30 years.
Data source: Calculator.net. Graphs by author.
Also note that in both examples, the majority of the investment gains were realized in the last third of the 30-year period, when the earnings from previous growth began to generate additional earnings that exceeded the annual contributions. This illustrates the important role that time plays in this process. So without further ado, let’s get started.
For comparison, if you save for 35 years, these totals would be over $500,000 and $800,000, respectively, which might motivate you to work five years longer than you had planned at this point.
Optimism goes a long way!
So how does the average 30-year-old start or grow their retirement savings?
It’s not necessarily easy, but it doesn’t have to be complicated. The key is to identify places in your budget where you can save extra money and then use services like direct deposit or automatic transfers to your retirement account to actually put that money aside. You won’t be in as much trouble if you don’t have the money in your pocket or bank account in the first place. And don’t forget to enroll in any retirement plans offered by your employer, many of which will contribute extra money to your retirement account on your behalf.
But above all, you might want to reframe your mindset to one of optimism. Discouraged people often fail to take action. Courageous people, on the other hand, are more likely to see opportunities others don’t and to put plans into action that will bring them closer to their long-term goals.
