How to save for retirement when you’re in your 30s

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In your 30s, responsibilities pick up. You’re likely to buy your first home and grow your family. Marriage, a mortgage and little mouths to feed can drain your earnings. Even the family dog eats a portion of your paycheck.

It’s easy to think that saving for retirement is impossible in your 30s, but it should remain a top priority, especially as your pay increases. You’ll need to work hard to balance spending with saving.

1. Ramp up 401(k) savings

Ideally, you’ll make the maximum allowable contribution each year to an employer-sponsored fund, such as a 401(k). For 2023, that’s $22,500. As you move up the career ladder, put raises into your retirement savings instead of spending them.

If you can’t afford to stash all of your pay increases into retirement funds, gradually increase contributions over time, advises Dee Lee, CFP and author of “The Complete Idiot’s Guide to 401(k) Plans.”

“Let’s say you’ve got 3% in your 401(k) to qualify for the company match. Add a bit more. Then maybe add another percent of your salary a few months later, so eventually you’re saving 10%–15% of your income,” Lee says. “You won’t miss the money if you increase saving slowly.”

Even incremental 1% increases can make a big difference in the long run. For example, a 30-year-old who saves 6% of a $50,000 salary each year, or $3,000, will have banked $1,159,517 by the time they are required to start withdrawing money from their 401(k) at age 75. (This assumes an 8% annual growth rate.)

If that same person boosted their yearly contribution by just 1%, or $500, they’d have $1,352,770. That’s a difference of $193,253. Use Bankrate’s calculator to see how your retirement contribution affects your paycheck.

Keep padding your emergency fund, too. Shoot for enough to cover six months of essential expenses.

2. Open an IRA

If you’re already putting as much as you can into a 401(k) or other employer-sponsored fund, pat yourself on the back, then open a separate IRA.

In 2023, individuals under age 50 can save up to $6,500 in a Roth IRA or traditional IRA.

Ed Slott, a nationally recognized retirement expert and author of “Your Complete Retirement Planning Road Map,” says that everybody should open a Roth. You save with after-tax dollars, but the earnings on your investments grow tax-free.

“The greatest money-making asset anyone can possess is time,” Slott says. “So younger people should take advantage of the decades of tax-free compounding available to them through a Roth IRA.”

Unlike many other retirement plans, you never have to cash out of a Roth. Earnings can grow for as long as you want. However, there are income limits for contributing to a Roth IRA.

If you don’t yet qualify for the 401(k), look at the traditional IRA. It has no income requirements as long as you’re not enrolled in an employer-sponsored retirement plan. You get a tax deduction for your contribution and earnings grow tax-deferred, which means you pay income taxes when you withdraw your money.

3. Maintain an aggressive asset allocation

It’s not enough to just save. You also need to keep an eye on existing retirement assets to ensure you’re not squandering opportunities for growth.

In your 30s, you need to invest aggressively, allocating 80%–90% of assets to a diverse array of stocks, says Ellen Rinaldi, former head of the retirement agenda for Vanguard.

The important thing is to stay focused on your goals during market volatility. Equity markets rise and fall. Declines are tough, but they are normal.

“Young people have the ability to weather a setback and they can wait for a rebound,” Slott says. “They can set it and forget it, within reason. Then the market will be good to them long-term.”

4. Keep company stock in check

Don’t fall into the trap of not paying attention to your assets, including stock in the company you work for. If your shares in the company have done well, they may make up a big chunk of your retirement investments.

Financial planners generally agree that company stock, or any other single equity, should never exceed 10% of your portfolio. More than that and you may be putting your retirement at great risk. “Your savings shouldn’t be determined by the health of a single company,” Rinaldi says.

Slott agrees. “It’s the old adage, you don’t put all your eggs in one basket,” he says. “The last thing you want is to lose your job and your retirement savings at the same time because their stock is down.”

5. Don’t let a better job derail your retirement plan

If you change jobs, don’t let your retirement fund take a hit. Too often, workers opt to cash out a 401(k) from their previous employer.

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

The smart move is to roll over the 401(k) 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(k), you may be able to keep 20% of an employer’s contributions after a year, but you’ll have to work another year to get an additional 20% 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 you’re about to reach a vesting milestone that will allow you to keep more, or all, of your employer’s retirement fund contributions and pension benefits, it may be worth it to wait before you leave your job.

6. Start preparing for college expenses with a 529 plan

Those with young children, take note: It’s never too early to think about college. But financial advisors strongly recommend that you still make saving for retirement your first priority.

“A secure financial future is vital,” says Bruce McClary, spokesman for the National Foundation for Credit Counseling. “It’s up to you to provide the majority of funding to get you through your golden years. No one else is going to do that.”

A 529 plan is a great way for parents to save for education, McClary says. A 529 plan—so-called because it is authorized by Section 529 of the federal tax code—is a tax-advantaged savings plan for a college education or tuition at any elementary or secondary school.

“Make use of 529 college savings plans where they’re available,” McClary says. “It is a very affordable way to put your kid through college versus independently putting aside money to send them somewhere else.” Families should also find out whether there are work-study programs, grants, loans or scholarships that will help fund their children’s college education.

If you are determined to send your child to Harvard, start saving early. Like any other big-ticket expense, it’s easier to save a little bit over the long haul than try to play catch-up when your kids are in high school.

7. Protect your earnings with disability insurance

Finally, safeguard your financial future. If you’re hurt or injured and can’t work, disability insurance will replace up to 60% or 70% of lost income, but only for a period of time.

Most employers offer short-term benefits, but many medium- to large-sized companies provide long-term benefits for up to five years, and sometimes even for your lifetime, according to America’s Health Insurance Plans, an industry group.

Check to make sure you’re covered. If not, and you can afford to, consider buying disability insurance on your own. It’s a similar story for life insurance. Many employers offer it. But if you’re out of a job, you lose coverage.

If you are short on cash, pick a term life insurance policy, which will get you the most coverage for the least amount of money and allow you to lock in low, consistent annual rates over the long haul.

—Bankrate’s James Royal and Brian Baker contributed to the update of this story.