No Retirement Savings at Age 30? How to Get Started

The best time to start saving for retirement is now.

It’s especially important to start if you spent your 20s skipping 401(k) contributions in favor of a better lifestyle.

Now that you’ve entered your 30s, you’ve likely realized that time can go by quickly, and before you know it, you’ll be retirement age.

If you don’t have enough savings at that point, however, you won’t be retiring like the rest of your peers.

If you haven’t started investing for retirement, it can be hard to know where to start.

Follow this guide, and you’ll get an idea of how much you should be saving and how to do it most effectively.

How Much Should You Have Saved at 30?

Financial advisors typically recommend that you save at least 10% to 15% of your gross income toward retirement.

But according to a 2018 survey by the National Foundation for Credit Counseling, roughly two-thirds of Americans save less than 10% if at all.

There’s no hard-and-fast rule regarding how much you need to have saved at any age.

Your financial goals for retirement are different than those of your friends and family members, so it’s hard to know exactly what you should have.

That said, Fidelity Investments suggests some rules of thumb to help you get started:

  • Age 30: The equivalent of your annual salary
  • Age 40: 3x your annual salary
  • Age 50: 6x your annual salary
  • Age 60: 8x your annual salary
  • Age 67: 10x your annual salary

Again, these rules of thumb can help you get started, but they’re not gospel.

How much you should save depends on how much money you want in retirement and how old you want to be when you retire.

An earlier or more luxurious retirement would require a higher savings rate.

Use an online retirement calculator to get a rough idea of how much you should be saving now and in the future.

If you want a more detailed analysis, work with a trusted financial advisor.

He or she can help you map out how much income you’d need in retirement and how that translates to monthly savings now.

An advisor can also consider various other factors, including Social Security income, taxes, and different rate-of-return scenarios.

There’s Still Plenty of Time

If you have nothing saved, the idea that you should already have the equivalent of your annual salary can be discouraging.

But while you may have to play catch up for some time, you can certainly get your retirement plan back on track with the right strategy.

This is why it’s important to start now rather than later.

For example, let’s say you’re 30 years old, want to retire at age 65, and need $1 million to meet your retirement goal.

If you start now and assuming an annual rate of return of 7%, you’ll need to save $6,760.71 each year, or $563.39 per month.

If you wait just one year, however, you’d need to save $607.22 per month.

And if you wait until you’re 35 to start saving, that monthly savings requirement increases to $824.49.

Even saving $563.39 per month can sound daunting, especially if you haven’t saved much in the past.

But if your employer offers a 401(k) with a contribution match, that can help.

For example, let’s say you earn $60,000 per year.

To reach your goal of $6,760.71 annually, you’d need to save 11.3% of your salary.

But if your employer matches your 401(k) contributions on up to 3% of your annual salary, you’d only need to save 8.3% of your salary — $4,980 — and your employer will bridge the gap.

Steps to Meeting Your Retirement Goals

Once you have an idea of how much you should be saving to meet your retirement goals, it’s time to start thinking about prioritizing where you put your money.

Retirement accounts tend to come with tax advantages, but they also have limits on how much you can contribute.

1. 401(k) or other employer-sponsored account

A 401(k) is a popular retirement account for employers.

But if you work for a non-profit organization or state or federal government agency, you may have a different type of retirement account, such as a 457 plan, a 403(b), or a Thrift Savings Plan.

A 401(k) is often the first priority for retirement contributions because many employers offer contribution matches as an employee benefit. 

That match is a golden opportunity for savers because it’s an automatic 100% return on your contribution.

Also, with a traditional 401(k), your contributions are deducted from your paycheck before taxes, so there’s an extra tax advantage.

With a Roth 401(k), your contributions does not lower your taxable income, but your earnings can be withdrawn tax-free during retirement.

Depending on your retirement strategy, you can choose to contribute only enough to get the match, or you can save more.

In 2018, the maximum amount you can save at age 30 in a 401(k) is $18,500.

Traditional 401(k) vs. Roth 401(k)

Traditional 401(k) Roth IRA 401(k)
Contributions are tax-deductible. Contributions are not tax-deductible.
Pay taxes upon withdrawal. Earnings can be withdrawn tax-free and without penalties if the funds were in the Roth 401(k) for 5 years and you've reached age 59 1/2.
Required minimum distributions (RMDs) are required starting at age 70 1/2. Required minimum distributions (RMDs) are required starting at age 70 1/2.

2. Individual Retirement Accounts (IRAs)

If you want a little more control over your retirement investments or you want to increase the amount of tax-advantaged retirement savings, you might also want to consider an IRA.

There are two types of IRAs:

  • Traditional: You make after-tax contributions but can deduct them from your income when you file taxes for the current year. Your savings grow tax-deferred, and you pay taxes only on your gains when you take distributions in retirement.
  • Roth: You make after-tax contributions but do not deduct them from your income. Your savings grow tax-free, and you don’t have to pay taxes on your gains when you take distributions in retirement.

A Roth IRA is a great choice if you anticipate that you’ll have more income in retirement than you do now and, therefore, will be in a higher tax bracket.

In 2018, a 30-year-old can contribute up to $5,500 per year across all of their IRA accounts.

Depending on your income, however, you may not get the tax benefits of an IRA.

Understand the contribution limits for both Traditional IRAs and Roth IRAs before you start saving.

Traditional IRA Vs. Roth IRA

Traditional IRA Roth IRA
Contributions may be tax-deductible. Contributions are not tax-deductible.
Pay taxes upon withdrawal. Earnings can be withdrawn tax-free and without penalties if the funds were in the Roth IRA for 5 years and you've reached age 59 1/2.
You must be under age 70 1/2 to contribute. You can contribute at any age.
Required minimum distributions (RMDs) are required starting at age 70 1/2. No RMDs required.

3. Taxable accounts

If you’ve exhausted the contributions limits or tax benefits of your 401(k) and IRA options, the next best choice is a simple taxable account with a broker.

While a taxable account won’t offer the same tax shelters as retirement accounts, there are ways to limit your taxes.

Specifically, use the buy-and-hold strategy with your savings.

If you buy a mutual fund, exchange-traded fund, or another type of investment and sell it within a year, your gains will be taxed at your ordinary income tax rate.

But if you hold them for longer than a year, your gains will be taxed at a special capital gains tax when you sell your investments.

For most people, this rate would be 15% or less.

Investment Approach

Regardless of which type of account you use to save for retirement, there are several different types of funds that you can invest in through the account.

Here are some of the main mutual fund types you’ll encounter.

Target-date funds

As the name suggests, target-date funds base their investment strategy on a specific time horizon.

If you plan to retire in 2055, for instance, you’d choose a 2055 fund, and it will change its investment mix over time, aggressive at first and increasingly conservative as it approaches the target retirement year.

These funds are typically more expensive than the other funds we’ll discuss. But they may still be appealing because they do most of the work for you.

Index funds

Index funds attempt to imitate popular indexes, such as the S&P 500, in the market.

You can often choose between several stock index funds, bond index funds, commodity index funds, and more.

Index funds are typically inexpensive because they don’t require much active management.

That said, your return will be closely tied to the market your fund tracks, and a market crash could be devastating to your portfolio.

Exchange-traded funds

Exchange-traded funds (ETFs) act similarly to other mutual funds with one key difference: you can trade them on an exchange like a stock. And if you’re an experienced investor, you can also buy them on margin or short-sell them.

ETFs aren’t as cheap as index funds fee-wise, but they’re still much cheaper than target-date funds.

Don’t Forget Your Emergency Fund

As you focus on saving for the future, it’s important that you don’t forget about short-term needs.

An emergency fund is a crucial element of your financial plan.

If something unexpected happens, such as an injury, job loss, or home repair need, you’ll need fast access to cash.

If all of your money is tied up in retirement and taxable accounts, you could face penalties and taxes if you withdraw your cash.

As a result, it’s wise to save 3 to 6 months’ worth of your basic expenses in an emergency fund.

Ideal Size of an Emergency Fund

To start... Ideal goal... Super safe...
$1,000 3-6 months of essential expenses 12 months of expenses

Put this money in a basic high-yield savings account to avoid exposing the cash to extra volatility and risk. Doing this will also make the cash more accessible when you need it.

Rather than focusing on one or the other, split your savings between your retirement goals and your emergency fund.

Conclusion

Saving for retirement in your 30s requires a long-term commitment, and the sooner you start, the better.

As you consider your retirement plan, it’s important to know how much you’ll need and what you need to save to achieve your goal.

It’s also critical that you check up on your progress periodically to make sure you’re still on track.

And if you work with a financial advisor, he or she can help you understand what changes you need to make to your plan to avoid missing the mark.

If you don’t have a retirement plan in mind, however, don’t let that deter you from saving.

At this point, developing the habit is more important than anything else.

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