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How to Save for Retirement at 30

By Austin Kilham · December 18, 2021 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How to Save for Retirement at 30

One of the most important things you can do for yourself in your 30s is to start prioritizing retirement savings if you haven’t done so already.

Building retirement savings at 30 is not always an easy task, even if you’re earning a higher salary as a more experienced worker. Responsibilities often increase along with your salary, but it’s important to keep retirement in mind even as you hit other milestones such as buying a house or starting a family.

To save for retirement in your 30s, you’ll need to balance your day-to-day spending with your long-term goals. The sooner you can begin saving for retirement the better. Here’s how to get started:

How to Start Saving for Retirement at 30

You can set yourself on a path to healthy retirement savings with the following strategies, starting with putting money into a designated retirement plan.

1. Contribute to a 401(k)

Saving in tax-advantaged retirement accounts available through work, known as a 401(k), is one of the best things you can do to start saving for retirement. Your 401(k) allows you to contribute up to $20,500 per year in 2022, up from $19,500 in 2021. Contributions come directly from your paycheck with pre-tax dollars, which lowers your taxable income in the year you make them.

Coupled with the benefits of compounding interest, this feature can help your savings grow even faster. Starting a 401(k) at 30 still gives you several decades for your funds to grow over time.

Also, 401(k)s allow employers to contribute to your retirement, and many will offer matching funds as part of your compensation package. Aim to save at least as much as is required to receive your employer’s match. Work toward maxing out your contributions, especially as your salary grows over time.

You can access the funds penalty-free once you reach age 59 ½, but you will owe taxes on the money at that time.

Recommended: 6 Steps to Max Out a 401(k)

2. Open an IRA

An IRA is a retirement account, which anyone with earned income can open. If you don’t have a 401(k) at work, opening an IRA can give you access to a tax-advantaged savings account. If you already have a 401(k), opening an IRA can be a good way to save even more, though you won’t get to write off your contributions.

For 2022, contribution limits to IRAs are $6,000 per year, the same as in 2021.

IRAs come in two different flavors: traditional and Roth IRAs. If you don’t have a 401(k), you can make contributions to traditional IRAs with pre-tax dollars. Like a 401(k), money in these accounts grows tax-deferred, and you’ll pay the taxes on it when you make withdrawals in retirement.

If you meet certain income restrictions, you may be able to contribute to a Roth IRA instead. In that case, you’ll make the contributions with after-tax dollars, but your money will grow tax-free inside the account and you do not have to pay taxes when you make withdrawals.

Recommended: Traditional vs. Roth IRA: How to Choose the Right Plan

3. Plan Your Asset Allocation

Diversification is the act of spreading your money across different asset classes, and to minimize risk from a decline from one type of asset, it typically makes sense to create a diversified portfolio, including a mix of asset classes, including stocks, bonds and other assets.

Your asset allocation refers to the proportion of each asset class that you hold. Your asset allocations will reflect your goals, risk tolerance and time horizon. Given the relatively long period until your retirement, you might consider a relatively aggressive portfolio consisting mostly of stocks in your retirement account.

Stocks typically provide the most potential for growth, but they also fluctuate more than some other asset classes. Since you have three decades or more before you retire, you have time to ride out the natural ups and downs of the market.

Bonds, which tend to be less volatile than stocks but also offer lower returns, may balance out the riskier equity allocation. As you approach retirement, you may consider rebalancing your asset allocation to include more conservative investments to help protect the income you will need to draw upon soon.

Target-date funds are a type of mutual fund that automatically readjusts your portfolio as you near your target date, often the year in which you wish to retire.

4. Diversify within Asset Classes

Just as a portfolio with different types of assets offers some downside protection, so too, does diversification within those asset classes as well. If you the entire stock portion of your portfolio shares in just one company. If share prices in that company drop, the value of your entire portfolio drops as well.

Now imagine that you own shares in 500 different companies. When one stock fares poorly, it will have a relatively small effect on the rest of your portfolio. Diversification helps limit the negative effects that any asset class, sector, or company could have on your portfolio.

You can further diversify your portfolio by including companies from different sectors and of all sizes from different parts of the globe. This same idea holds true for other asset classes. For example, you could hold a mix of government and corporate bonds, and the corporate bonds could represent companies from various sectors and locations.

One way to add diversification to your portfolio is by investing in mutual funds, exchange-traded funds (ETFs), and index funds that themselves invest in a diversified basket of stocks. For example, if you buy shares in an ETF that tracks the S&P 500 index, you’ll be investing in the 500 stocks included in that index.

5. Don’t Cash Out your 401(k) if You Get a New Job

If you’re only in your 30s, it’s likely that you’ll change jobs a couple of times, or more, over the course of your career. When you change jobs, you’ll have a number of options for what to do with the 401(k) you hold with your previous employer.

One of these options is to cash out your 401(k). But this is typically not a great idea from a personal finance perspective. If you take a lump sum payment and you’re younger than 59 ½, you may not only owe income taxes on the withdrawal, but also a 10% early withdrawal penalty. What’s more, your money will no longer be working for you in a tax-advantaged account, potentially setting you back in your retirement savings goals.

A better option is to roll over your 401(k) into another tax-advantaged retirement account, such as your new employer’s plan, if they offer one, without paying income taxes. Or you can roll your 401(K) into an IRA without paying taxes. IRA accounts offer the added benefit of additional investment options, and they may have lower fees than your 401(k).

Recommended: How to Transfer Your 401(k) When Changing to a New Job

6. Protect Your Earnings with Disability Insurance

An injury or an illness that keeps you from going to work can hamper your retirement savings plan. However, disability insurance can help cover a portion of your lost income — usually between 50% and 70% — for a period of time.

Most employers offer some sort of short-term disability insurance, with a benefit period of three to six months. Some employers may offer long-term policies that cover periods of five, 10, or 20 years, or even through retirement age.

Check with your employer to see if you are covered by a disability policy and whether it provides enough coverage for your needs. If your employer’s plan falls short, or you don’t have access to one, you might consider purchasing a policy on your own.

The Takeaway

The earlier you can start saving for retirement the better. A long time horizon gives you the opportunity to take advantage of compounding growth for a longer period of time, which can help you increase the amount you’re able to save. Pay attention to the fees you’re paying on investments, which can eat away at returns over time.

One way to begin is by starting an IRA account on the SoFi Invest brokerage platform. You can open an account in less than minutes, and get started on building your retirement savings.

Photo credit: iStock/AJ_Watt


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