When you reach your 30s, retirement might feel inordinately far away, but the truth is there’s no better time to begin your retirement savings plans. The sooner you begin, the better off you’ll be when the day finally come and you leave the professional 9 to 5 work world.
The Realities and Your Expectations
You’ll need to come up with a solid number to work towards, but you can’t do that unless you’re realistic about what you can contribute, and the level of living you expect to enjoy once you’ve reached that golden age. Keep in mind that the average American spends about 20 years in the age of retirement, so that’s 20 years you’ll need to cover without expecting a paycheck every two weeks—social security can only go so far. Financial experts generally agree that an individual needs 70 to 90 percent of their pre-retirement income to keep up with expenses after retiring. It’s also important to consider your ideal retirement. Do you plan on booking as many trips as possible to take in the world? Are you hoping to buy a vacation home that your family can enjoy during the summer? Knowing exactly what you want (even if that shifts as time goes on) is important when you’re coming up with a goal savings number. If you’re married or in a long-term relationship, you need to speak with your partner and take their retirement plans into consideration as well to come up with a more accurate number.
The Importance of Emergency Savings
It’s understandable to want to go full force on your retirement savings plan, but don’t forget to put money aside in an emergency savings fund. Most experts agree that you should have at least six months of living expenses set aside in case of tragedy, unemployment, or other unforeseen events that may result in the loss of a regular income. If you don’t yet have this type of savings account, consider starting one with a bank like Citizens Bank. Start slow, and add regularly to ensure you’re covered should the worst happen. Remember that with any type of savings account, you should take advantage of compounding interest. Compounding interest works in your favor, and the longer you have money in a retirement plan or emergency fund, the more you’ll make, as interest increases exponentially.
Pay Off Lingering Debt
Whether it’s debt on credit cards, outstanding student loans, or car payments, getting rid of debt is paramount when it comes to financial health, no matter your age. As you work towards retirement, it’s important to seek out the best ways to pay off lingering debt. You may elect to use the snowball method, in which you pay off the debts that carry the lowest amounts first to make debt more psychologically manageable. However, others prefer the avalanche method, in which you pay off accounts that carry the highest interest rates, as you’ll pay less over the long run in interest fees. If you’re in debt with the IRS, make these debts your first priority. Ignoring your tax debt can result in tax liens and levies, in which the government lays claim to your property, bank accounts, and vehicles in order to receive what they’re due. Work with a professional to come up with an IRS tax payment plan and work yourself out of these debts with urgency.
If you’re not yet enrolled in your employer’s retirement plan, now is the time to do so, whether it’s a pension, 401k, or 457. Once this is set up, make sure you’re taking advantage of employer matching. Even if you have to contribute a bit more each month yourself, not seeking company matches means throwing away free money. It’s also important to take insurance coverage into consideration. If your company offers medical, dental, and vision, take advantage, as emergency medical costs can deplete savings accounts in the blink of an eye. If you don’t have that option at your place of employment, be sure to look into insurance policies from a company like United Health Care.
Retirement isn’t as far off as it may seem; now is the time to start making strategic financial moves to set yourself up for success in the sought after golden years.