So you are thirty something and just getting your feet on the ground, career-wise. Perhaps you’re starting a family, buying your first home or simply enjoying a carefree life.
Hi, I’m Sarah Westin, host of Roadmap for the Future, brought to you by Western & Southern Life.
And today we’re talking about why people in their 30s should think about preparing for retirement. We have Troy Brodie, the President & Chief Marketing Officer - W&S Agency Group, here with us to share some of his thoughts.
So Troy, why is it important for people so seemingly young to be concerned about retirement?
Well, when you’re in your 30s, retirement can feel like a lifetime away – I know, I’ve been there!
This is when a lot of people are starting families, with all kinds of life and financial priorities hitting them. But you cannot put your retirement on a backburner. You just can’t.
If you are in this age group, it is important to understand that the decisions you make today will affect where you stand, financially, tomorrow. And if you wait, say five or ten years, you’re going to need to save at a much more aggressive rate in order to catch up. The time to start is now!
I see your point… So let’s get into some specifics for 30-somethings.
Well, for starters, you have the benefit of compounding… meaning your money earns money on itself. Here’s a really simple example… You have your principal, the initial sum you are saving. Keep that in a fixed savings vehicle for a year where interest is credited, thus increasing its overall value.
Now, at the beginning of year two, you’re able to earn interest again, but this time it’s on the principal – that initial sum – as well as the interest it earned the year before.
Imagine leaving this account alone for ten, twenty years or more without adding another penny… Through compounding alone, it has the potential to grow considerably.
Now it’s important to start saving early and continue to contribute, but I hope this simple example helps to illustrate the power of compounding. The more time you have, and the more you continue to contribute to your savings vehicle, the more you will be able to leverage the notion of compounding.
This allows you to save more and may ultimately help create a more comfortable retirement.
Yes, I get it… So how does one get started?
An easy way is to take advantage of your employer’s 401(k) Plan, if available. Many employers offer a 401(k), some also offer some type of matching program.
So you may want to think about contributing as much as you can to take full advantage of any matching offers. Look, this is free money, and if you have your contributions deducted from your pay… you may not even notice.
And the icing on the cake is that… 401(k) contributions may reduce your income for tax purposes.
Is there anything more that people in their 30s could do to add to their retirement savings?
The short answer is, “As much as they possibly can.” You can’t expect the government to swoop in and save you when you want to stop working.
So in addition to what you are able to save through your job, you will probably need to save on your own as well. To do this, consider seeking guidance from a reputable, licensed financial professional.
30-Somethings do have options… a Roth IRA comes to mind, but that’s just one approach and it depends on the person’s situation.
Say you’re putting away a sum every month, which sounds great. Then you get a raise. Even better, right? But this is when I start to hear about “lifestyle creep.”
Yes, but when you get a raise, it’s important to make sure you’re giving your retirement savings a raise, as well. As tempting as it may be, this is not the time to make extravagant purchases. Instead, live within your means, with occasional splurges, but make sure you’re continuing to up the ante with your retirement savings program and this will help you to avoid lifestyle creep!
So what is the bottom line…?
The bottom line is to start now, even if it may seem as though you are not saving much. Start to establish good, healthy savings habits now. And keep in mind… Time plays a huge role in your ability to create a comfortable retirement, so let’s get this train out of the station right now!
Troy… thank you for your time and expertise today.