# How To Start Saving For Retirement At 30

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## Use The 15% Rule As A Guide

How to start saving for retirement in your 20s, 30s and 40s

Many financial advisors suggest using the 15% rule as a starting point when an individual begins saving for retirement at 30.

Under the 15% rule, individuals in their 30s who want to retire by their late 60s should set aside approximately 15% of their gross annual salary towards retirement each year.

The 15% rule assumes the desired yearly income in retirement is equivalent to at least 55% of the pre-taxed or gross annual salary made before retiring.

This adds up to a total of 10 times a single years gross income to spend throughout ones retirement.

Those who predict theyll have more medical expenses in the future or see themselves going on multiple vacations a year may want to set aside more approximately 80% of their pre-taxed annual income.

Ultimately, the amount put towards retirement depends on the individuals lifestyle and projected needs.

## Example: How Much You Need To Save Each Month If You Start To Save For Retirement Early

Suppose you plan to retire in 20 years. You want to save \$75,000 for your retirement. You’re earning an annual interest rate of 5% compounded on your savings.

Compare how much you’d have to save each month if you start to save now or in 10 years. When you have 20 years to save instead of 10 years, you have to put \$14,160 less into the bank to reach your goal. This is because you earn more money in interest the longer you save. In this example, you earn \$14,020 more in interest when you have 20 years to save than when you have 10 years to save.

Table 1: Compare how much you’d have to save each month if you start to save now or 10 years

Years you have to save How much you need to save per month Amount saved

Note: the numbers are calculated using the Ontario Securities Commissions Compound Interest Calculator.

## Determine Your Monthly Savings Rate

Once youve determined your total retirement savings goal, estimate how much youll need to set aside each year to reach it using a retirement savings calculator. Estimate market returns at a conservative 6% per year, even if historically market returns have been higher.

Assuming a 6% rate of return and the \$1.25 million figure from our earlier example, you would need to save about \$218,000 over 30 years to reach this hypothetical retirement goal. That works out to \$7,266 a year or \$605 a month.

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## Tap Into The Benefits From Your Employer

Throughout your career, youll likely have opportunities to opt into a group RRSP do it! Typically, your employer offers a matching contribution, so youll get an automatic return on investment. On average companies offer to match anywhere between 3-6%.

So, lets say your paycheque comes. You automatically enroll to have 6% of your pay go towards your registered plan. Your employer matches that, for free, so now you have 12% going towards saving for retirement. If you make an average of \$55,000 per year, 12% of this is \$6,600 per year. If you keep the same level of contribution for the next 30 years thats \$198,000 that you will have saved with an RRSP alone. And, the best part is half of that money was free from your employer as part of group RRSP matching.

## In Your 60s And 70s: Prepare For Retirement

When a person is within a few years of retirement, say five years, they should begin to reduce their risk exposure in retirement accounts, says Johnson. A large downturn in the market immediately preceding retirement can have devastating effects on an individuals standard of living in retirement.

However, keep in mind that retirement can last 30-40 years depending on your lifespan, so youll likely still need some risk within your portfolio to help your money grow and withstand inflation.

Asset allocation combats market volatility and “sequence of returns risk” . Setting aside enough fixed income and cash provides flexibility. Because stocks and bonds generally have an inverse relationship, an investor needing cash in a down market can sell bonds, giving the stock market time to rebound.

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## How To Start Saving For Retirement

Start a habit of saving a portion of your pay from every paycheque if you can afford it. The earlier you start saving, the longer your money can earn interest and grow.

Using automatic payments and deposits can be a good way to save money. Contact your financial institution to have a set amount of your pay automatically deposited into a savings account. Consider increasing the amount of the automatic payments or deposits as your pay increases.

## Dont Let A Better Job Derail Your Retirement Plan

If you change jobs, dont let your retirement fund take a hit. Too often, workers opt to cash out a 401 from their previous employer.

If you do cash out before age 59 1/2, youll pay a 10 percent penalty on top of income taxes, which could be as much as 37 percent if youre a high earner. In response to the pandemic and brief recession, fees for raiding 401s early were waived in 2020.

The smart move is to roll over the 401 into an IRA, which you can then invest any way you want.

Bad timing is another costly trap. Most employer-provided retirement plans require you to work a certain length of time before you become eligible for full benefits, known as vesting.

For example, with a 401, you may be able to keep 20 percent of an employers contributions after a year, but youll have to work another year to get an additional 20 percent and so on until you are fully vested. Pensions are structured a bit differently, with benefits usually becoming available after five years of service.

If youre about to reach a vesting milestone that will allow you to keep more, or all, of your employers retirement fund contributions and pension benefits, it may be worth it to wait before you leave your job.

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## Dont Let Debt Weigh You Down

Getting your debt under control is also critical for your financial wellness. Thats because it can prevent you from affording things later on, eats up extra income and leads to bad credit, which could make it difficult to qualify for a mortgage loan if you want to purchase your first home or upgrade to a bigger home.

Heres how you can knock down your debt.

## Heres What We Recommend:

How to CATCH UP on Retirement Savings in Your 30s, 40s & 50s *after* a Late Start NO RETIREMENT?!?
• Save at least enough in your employer-sponsored account401, 403, 457 or Thrift Savings Planto get the full company match, if your employer offers one. If you have more than one 401, find out if a rollover is right for you.3
• Use a Health Savings Account Tooltip An account that lets you set aside tax-free dollars for qualified medical expenses. Most HSAs also let you invest your savings. To be eligible, you must be enrolled in a high deductible health plan . to put money away for future health care costs, if youre eligible.
• If youve maxed out your employer-sponsored account or dont have one, consider a traditional or Roth IRATooltip Individual retirement accounts are personal retirement savings plans that have tax benefits. Most IRAs offer a choice of investments. Types of IRAs include traditional, Roth, rollover, education, SEP and SIMPLE . to boost your savings.
• If youve maxed out your IRA, consider a brokerage accountTooltip A taxable account that you open with a brokerage firm. It allows you to invest in stocks, bonds, cash, ETFs, mutual funds and other investments. to save even more.

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## How Much You Should Have Saved At 30

There isnt a hard-and-fast rule as to how much money you should have set aside for retirement at 30. 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 youre older? Are you going to retire as soon as humanly possible, or are you in the type of industry where you might want to work into your old age?

Once youve figured out these questions, you should have a better idea of what your retirement will be like. A retirement calculator can help you figure out how much money youll need to have saved for retirement and show you if youre on track or not. Once thats done, you can see what adjustments you need to make in order to meet your goals.

## Saving A Little Early Vs Saving A Lot Later

You may think you have plenty of time to start saving for retirement. After all, you are in your 20s and have your whole life ahead of you, right? That may be true, but why put off saving for tomorrow when you can start today?

If you have access to an employer-based retirement plan, take advantage of it. Most employers will match some of your contributions, so you’ll benefit from having an extra boost to your savings. And with pretax deductions, you won’t even notice your money is being put away.

You can also put money aside outside of your employer. Let’s consider another scenario to drive this idea home. Lets say you start investing in the market at \$100 a month, and you average a positive return of 1% a month or 12% a year, compounded monthly over 40 years. Your friend, who is the same age, doesnt begin investing until 30 years later, and invests \$1,000 a month for 10 years, also averaging 1% a month or 12% a year, compounded monthly.

Who will have more money saved up in the end?

Your friend will have saved up around \$230,000. Your retirement account will be a little over \$1.17 million. Even though your friend was investing over 10 times as much as you toward the end, the power of compound interest makes your portfolio significantly bigger.

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## In Your 40s And 50s: Make Sure Youre On Track

If you arent already, consider learning more about saving into IRAs, because they provide compelling tax advantages for those saving for retirement. Mixing Roth and traditional IRAs provides access to buckets of money with varied tax treatments to pull from during retirement, depending on what makes sense for you at the time.

If you have a 401, continue to bump contributions if you havent yet maxed out. The IRS knows that many are behind on retirement savings, so it allows those age 50-plus to take advantage of catch-up contributions in retirement accounts.

For 2021 and 2022, the catch-up contribution allows an additional \$6,500 of savings on top of the \$20,500 for 2022 maximum contribution for 401s. You also get an an extra \$1,000 on top of the \$6,000 maximum contribution limit for IRAs.

So you have enough cash to deposit into your high-yield savings account, it’s important to maintain low cash outflow.

Start by creating a budget to see where every dollar of your money goes each month. You may realize some easy expenses to cut back on, like canceling any unused subscriptions, memberships or streaming services. If you’re starting to ease out of working remotely and are returning to the office, consider how much your commute and eating out can cost you.

And as you progress in your career and your income increases, continue to live on your older budget so that you save the difference in earnings.

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## Start Financial Planning For Retirement

Those who have crossed 50 must show the greatest urgency.They need to achieve a corpus that can sustain them and their spouses for at least 25-30 years after retirement, advises Bindisha Sarang.

While everyone looks forward to a peaceful retirement, that goal may prove elusive for those who don’t accumulate an adequate retirement corpus.

A recent study by Max Life Insurance, in partnership with Karvy Insights, covering 1,800 respondents across 28 cities, paints a dismal picture of Indians’ retirement preparedness.

About 23 per cent said they have given no thought to retirement planning.

Nearly 80 per cent feel they should have begun investing earlier.

56 per cent believe their savings will get exhausted within 10 years of retirement.

And 45 per cent are banking on their children.

Starting late

Those who have crossed 50 must show the greatest urgency.

They need to achieve a corpus that can sustain them and their spouses for at least 25-30 years after retirement.

Says Mumbai-based certified financial planner Kiran Telang: “There is no easy way out for them. They must cut down their expenses drastically and invest more. Those above 50 are also at higher risk of losing their jobs. If that happens, and they have only a small corpus, it could be a double whammy.”

Savings may not last a lifetime

Many people grossly underestimate the corpus they will need during retirement.

Reliance on children

## Consider Health Care Costs

Unexpected health care costs can easily throw off your retirement plan. Medicare generally doesnt cover long-term care needs unless you require skilled nursing care. This is where long-term care insurance can be handy. Advisors say the sweet spot for purchasing a long-term care policy is in your 50s, when youre still young and healthy enough to qualify for the best rates.

Another way to cover medical costs is by using a health savings account. High-deductible health plans allow you to save and invest into HSAs, which are used to fund eligible medical expenses both now and in the future. HSAs have triple tax advantages contributions are made pretax, investments grow tax-deferred, and you dont pay tax with withdrawals. Balances also roll over from year to year.

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## Preparing For Retirement In Your 20s And 30s

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Thank you for sharing

Whether youre a recent college grad, your career is in full gear, or you have a young family, theres one crucial step you can take to help ensure a healthy and happy retirement: start saving.

Even saving a little can make a big difference. Why? Because of the power of compounding. Right now, time is truly on your side.

## Identify How Much Savings You Need

How to Start Investing and Saving for Retirement

You might tell yourself you don’t need a million dollars or that you just want a simple life. But even a simple life can require \$1 million in the bank after you quit working. Most experts agree that you should withdraw no more than 3% to 4% of your retirement portfolio each year during your retirement. If you do the math, 3% of \$1 million is \$30,000, and 4% is \$40,000.

In other words, if you want to live on an income of \$30,000 to \$40,000 per year in retirement, you’ll need a portfolio of at least \$1 million. That assumes you won’t have a pension, rental properties, or other sources of retirement income. It also excludes Social Security income.

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## Invest Aggressively But Dont Be Foolish:

The beauty of starting your investing when youre young is that youve got a lot of time to work with. Therefore you dont have to take on as much risk.

Because youre starting to save for retirement in your 30s, time is slowly creeping away. And that means taking on a little more risk with your investment selections. Go for more mutual funds that cater to stocks rather than bonds. Be sure to also choose ones that target more small-cap, medium-cap, and international stocks as opposed to just all large-cap stocks.

But dont go overboard.

Most financial advisors will agree that you can never beat the average of the stock market over the long term under any circumstances. That return is generally 8% per year. A wise person will acknowledge this point and simply choose funds that close to this return rather than try to beat it. Remember: Just because youre starting to save for retirement later doesnt mean youll somehow beat the system.

## Tip #2 Find Lost Pension Pots

Think youre only just starting to save into a pension now? Think again, as you could have old pensions you didnt even know about! As a result of auto-enrolment for workplace pensions, if you started a new job from 2012 onwards, earn over £10,000 and worked in the UK, its likely you will have been automatically enrolled into the scheme with the minimum contribution coming out of your pay before it hit your bank account.

If you think you may have some old, stranded pensions, you wouldnt be the only one A staggering 1.6 million pension pots worth £19.4bn are lost according to estimates from the Association of British Insurers the equivalent of £13,000 per plan! No need to worry, there are ways you can track these down and at the end of it, you might have a nice pot of money you didnt even know you had.

In the next lesson, we take a look at the 5 reasons why it could be worthwhile combining your old pension pots.

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