Updated: Apr 02, 2024

How to Build Retirement Savings When You Only Earn $30,000 Per Year

Even when your income is $30,000 per year, learn how you can budget and save for retirement -- including what accounts to use -- when cash flow isn‘t too high.
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Let’s face it:

Saving for retirement can be a challenge.

Lots of Americans live paycheck to paycheck, making savings difficult. 

However, by making savings a priority, anyone can begin putting aside money for retirement.

The good news is:

Many investors have been in your position before and have succeeded. Thanks to their efforts, there’s already a roadmap in place that can guide you to a successful retirement.

Even on a salary of $30,000 a year, you can start amassing a long-term nest egg by making smart choices.

Here’s how you can approach this goal when your income isn't as high as you'd like it to be:

  • Pay yourself first
  • Use a budget that works for you
  • Cut expenses

Pay Yourself First

An oft-repeated mantra in the personal finance world is to “pay yourself first.”

This doesn’t mean that the first thing you should do with your paycheck is to go buy some new shoes.

Quite the contrary, actually.

What advisers mean when they say “pay yourself first” is that the first slice of your earnings should go to your savings.

That is:

Even before you pay your bills, send a percentage of your paycheck to your savings account.

Ideally, you’ll save 10 percent or more of what you make.

But when you first start out, five percent, three percent, or even one percent is a good start, just to get you in the habit of saving.

Make it automatic

The "trick" is:

To make sure you stay in the habit of saving, set up your account for automated savings.

Financial services have evolved so much by now that automating your savings is easy.

Simply tell your financial services company how much you want to save, and how frequently. They’ll automatically make your transfers for you, even if you forget.

Many investors say they don’t even miss the money once they’ve begun an automatic savings program.

That’s the position you ultimately want to reach -- comfortably living below your means, with the excess being diverted to savings.

Stick to a Budget

You may have read some buzzworthy articles on the internet about how people managed to save $1 million by the time they were 28.

That may be possible for an extremely rare and fortunate few.

But, the reality is that most people don’t work jobs paying $200,000 per year and can’t save 90 percent of their paychecks.

When it comes to your own personal financial situation, try to avoid the natural human tendency to “keep up with the Joneses.”

Deal with your own financial reality in an open and honest way. This will put you in a much better position to take the steps necessary to get to where you want to be.

Be realistic

Paying yourself first is a great financial move.

But, you have to be realistic about what you can save. Making a budget is a critical step in uncovering and understanding what “realistic” is for you.

A budget is simply a record of your income and expenses.

By tracking how much money comes in -- and even more importantly, where money goes out -- you can get the big picture of your financial situation.

There are many budgeting apps you can use for free to help you track your cash flow.

Or, you can make your own simply by writing down for one month all the money that comes in or goes out.

Once you have an accurate picture of where you spend your money, you can move on to the next step -- trimming expenses.

Reduce Expenses

No one can reduce their expenses to zero.

Between food, rent, clothing, and transportation alone, there are certain costs that can be hard to avoid in the modern world.

Beyond that, it’s simply human nature to want to spend what you earn.

After all, you work hard for your money, and everyone feels entitled to at least a little bit of fun and entertainment.

And there should without question be a category in your budget for these types of expenses.

However, if you’re making $30,000 a year and you want to save money for retirement, there has to be some give-and-take.

Take a close look at your budget, particularly after you’ve been tracking your income and expenses for a few months.

Your budget should give a clear picture as to where you can cut some expenses in favor of your long-term retirement savings goals.

For example, you might think that you only spend $10 here or $15 there on eating out. But your monthly budget might reveal that you spend $400 or more per month on restaurants.

You don’t have to cut your restaurant expense to zero. But, dropping it from $400 to $200 could translate to an additional $2,400 per year in retirement savings.

That’s an easy $200 you could cut out of your monthly budget just by dining in less-fancy restaurants. You could also choose to eat at home instead of going out once or twice per week.

Depending on your lifestyle, you might find other easy cuts to make as well.

Common areas of overspending include cable TV packages, mobile phones, and designer coffee addictions.

If you have any type of financial services fee, that should be among the very first things to go.

For example, you should never pay a monthly service charge for a checking account or credit card interest.

There are plenty of great no-fee checking accounts available. No matter what your income, you should never carry a balance on your credit cards.

Once you’ve made the necessary cuts to your monthly expenses, send that money to your retirement savings account instead.

Build an Emergency Fund

Before you start building your retirement savings, remember one important step:

Build an emergency fund.

Most financial advisors suggest you should keep three to six months of 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

Life is full of unexpected surprises.

If you suddenly need $500 to get a new radiator, or $1,000 for an uncovered medical bill, you don’t want to have to dig into your retirement savings to pay for that.

An emergency fund is an important financial cornerstone. You can use it as a first step towards long-term financial prosperity.

Go with an online bank

If you're going to be setting aside money for a rainy day, you should consider an online savings account.


Online banks provide savings rates that are at least 100 times as much as what you get from traditional brick-and-mortar banks.

The fact is:

Big banks pay operating expenses to run physical branches and ATMs.

Online banks don't deal with that. So, customers benefit by earning very high interest rates with little to no fees.


Review Available Investments

Once you’re ready to invest your savings for retirement, you don’t want to just stick it under a mattress.

Saving any amount is good. But, putting your money into investments that can earn you interest will help you reach your retirement savings goal faster.

The real magic of investing comes in the form of compound growth.

Imagine a scenario where you have $30,000 saved and you earn 10 percent per year on that money.

In this scenario, if you don’t reinvest your interest, you’ll earn $3,000 in interest every year, putting your balance at $90,000 after 20 years ($3,000 per year for 20 years plus your original $30,000).

However, if you do reinvest that interest, every year you’ll earn more money, since your balance will be increasing.

For example, in the first year, you’ll earn your $3,000 in interest, bringing your balance to $33,000. But in year two, you’ll earn $3,300, not $3,000.

Over time, the power of compound interest is staggering. After 20 years, rather than reaching a balance of just $90,000, as in the original example, your $30,000 will grow to $201,825.

So, how can you earn more than zero on your investments?

The most conservative way is to open an online savings account.

Savings accounts are insured by the Federal Deposit Insurance Corporation, up to $250,000, so they’re a good way to safely tuck away some savings.

Rates on savings accounts change frequently, but the best ones were paying close to 0.6 percent as of late-2020.

While savings accounts can be a good start, you’re not going to get rich by investing in them. In fact, you’re not likely to meet your retirement savings goals if your primary investment is a savings account.

Invest for higher returns

One option to consider is a mix of stocks and bonds to balance out risk and reward.

Bonds are like IOU’s:

You lend money to a company or government, and the issuer promises to pay back your money at a specific time, known as the maturity date. Along the way, you earn interest on the money you have invested.

When you own a stock, you actually own a portion of the underlying company.

There are many factors that go into the movements of stock prices. But, generally, when companies earn greater profits, their stock prices go up.

Bonds are more conservative than stocks, but also tend to produce a lower return.

Here's the deal:

Stocks can generate high returns, but they are volatile and can lose money for extended periods of time.

For example, from 1926 to 2017, the long-term average return of the U.S. stock market was 10.27 percent, but in six of those years, the market dropped by more than 20 percent.

Over the same time period, the annualized return for the U.S. bond market was just 5.35 percent, and the market never dropped by as much as 10 percent.

If you’re just starting out, you might want to consult with a financial adviser to help you construct a portfolio that balances out your investment objectives and your risk tolerance.

Whichever investments you choose, the key is to invest consistently over time.

Enjoy Tax Benefits

What you might not have known:

There’s one definite benefit for lower-income earners when it comes to putting away money for retirement.

The IRS provides investors with a tax credit for retirement savings if you fall below certain income levels.

For 2020, if you’re married and filing jointly, you can get a credit equal to 50 percent of your contribution, up to $2,000, if your adjusted gross income is below $39,000.

In other words, if you contribute just $4,000 to your retirement savings, you’ll earn $2,000 back on your taxes.

That’s the kind of return you can’t expect on any type of investment, and it comes with government backing to boot.

Even at higher incomes, you can still earn a credit, although the amount is reduced.

For example, even if your income is between $42,501 and $65,000, as a joint filer you can still earn a 10 percent tax credit.

Getting paid by the government to save for retirement is the type of benefit that should motivate any investor.

Make sure to take advantage of this free money while you can, since tax credits are always subject to legislative change.


Building retirement savings on a $30,000 per year salary can be tough, but it’s by no means impossible.

Review your financial situation.

Cut your expenses.

Pay yourself first.

These are all important first steps towards growing your nest egg.

Build an emergency fund and choosing solid, long-term investments. These steps are key to building wealth and prosperity over time, and the sooner you can begin, the better.

Take advantage of the government-paid tax credit that’s only available to lower-income taxpayers. This will give you a leg up on your savings and investment strategy and you’ll be on your way to a more comfortable retirement.