The post comes from My Money Design, a blog that is all about getting you ready to live a rich and wealthy life.
If you really want to get serious about investing or saving for retirement at 30, one of the best places you can start is with your retirement savings. Though retirement may seem like a long ways away, there are a lot of things about it that can be helpful to building up your fortune. Plus the earlier you start saving, the easier it is to hit your goals and the risk you have to take on to achieve your goals.
But with so many books and blogs on this topic, where in the world are you supposed to start?
The good news is that retirement planning does not necessarily have to be so complicated. Unless you plan to run your own business or make millions of dollars, you can actually concentrate your efforts on just a few important topics.
Figure Out What Your Retirement Goal Really Is:
Before you travel anywhere, you have to know 1) where it is your going and 2) how far away you’ll be traveling.
Retirement planning is very similar. None of what you’re doing will help unless you’ve got these two things figured out first.
To get yourself prepared, simply pick:
- How much money you think you’ll need every month during retirement. For me, I’ve decided that my target is $5,000.
- When you’d officially like to BE retired. My wife and I decided that this would be age 45 for us.
Once you have these figures, now you’ll have the basics of a plan. For example: You might ask yourself how much do I need to retire at 55 years old?
- Let’s suppose to retire by age 55 you’ll need $5,000 per month (or $60,000 per year). To figure this out simply multiply this number by 25 to figure out how much savings you need. $60K x 25 = $1.5 million.
- Now let’s say that age 55 is 30 years to save. Simply using Excel we can estimate that we’ll need to save about $13,241 per year if we want to hit this target.
Maybe you’ll hit these targets or maybe you’ll need to adjust them according to how your plan shapes up. But the important thing to remember is that you at least HAVE a target to shoot for!
Learn About Your Savings Options:
What sounds better to you – saving your money after taxes have been taken out or before taxes have been taken out?
BEFORE of course! And the reason why is because that way you’ll get to keep MORE of your money.
For most people these plans will be either an IRA or an employer sponsored plan. Though there are a lot of differences and similarities between an IRA vs 401k plan, the good news is that you can use the benefits of both to really maximize your savings efforts and give your retirement plans a boost.
Are you a freelancer or self-employed? The IRS has options for you too. You could look further into a simplified employee pension IRA (also called an SEP IRA) or Solo 401k plan to get very similar benefits.
Learn About Taxes:
Don’t just assume that during retirement you’ll be paying the same amount in taxes are you are now. In many situations your tax situation could be potentially much lower than what you’re paying right now in your 30’s!
For example: Did you know that the taxes paid during retirement on dividends and capital gains are lower than what you’ll pay on your 401k withdrawals or side job? Suppose you don’t want to pay taxes at all when you retire. Then it might make sense to setup a Roth IRA or Roth 401k plan for yourself.
It doesn’t really matter how you decide to set it up. The important thing is that you actually are aware of the rules and educate yourself on how you can benefit from them.
Learn Smart Investments from Foolish Ones:
How do you expect to hit your retirement goals? Through hot stock tips? Lots of big real estate investments?
The answer – probably not.
Unless you truly know what you’re doing when it comes to stocks or real estate, I wouldn’t expect to do any better than the market average.
BUT that’s not necessarily a bad thing when you consider that the long-term average annualized market average for stocks is around 8%!
So make your life easy. Get ready for retirement by simply picking index funds that emulate the S&P 500 market average. Not only will you trail the average market return, but your expenses for owning these funds will be undeniably lower than everyone else’s!
Saving for Retirement at 30 Should Be Automatic:
Want to take the pain out of saving and investing? Automate it!
For anyone who is truly serious about saving for retirement at 30 or older, this is really the best habit to get into it.
For years the way I’ve invested in our IRA is to have our financial provider simply take an automatic withdrawal from our checking account every month. This helps us to incrementally hit our goal of $11,000 for the year (two IRA’s at $5,500 each). We also do something similar with our 401k contributions.
By having the money get deducted in this way, we learn to live without it and adjust our budgets to accommodate it. Over time I forget that I’m ever actually making investments or that the money is really leaving our accounts.
KK’s input: great info here! Retirement is something that’s so important, and something I got started a little later than I’d like to admit. Many thanks to MMD for this great guest post!
Have you started saving for retirement yet?
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