As people enter their 30s, retirement planning should become a top priority. Though retirement may seem far away, starting to save and invest in your 30s is critical to build the nest egg needed to maintain your lifestyle in retirement. This decade is a pivotal time to make retirement investments, as compound interest has more time to grow your money. There are several key investments to focus on in your 30s to properly prepare for retirement.
Max out retirement account contributions
One of the most important investments in your 30s is consistently maxing out contributions to tax-advantaged retirement accounts like 401(k)s and IRAs. The power of compound interest works best when you start saving early and maximize contributions. Though it may require budgeting and sacrifice, putting away the annual maximum to retirement accounts ensures your money can grow exponentially. For example, contributing the 2023 maximum of $22,500 to a 401(k) annually from age 30 to 65 could grow to over $2 million by age 70, assuming a 7% average annual return.
Invest in diverse stock funds
Within retirement accounts, stock funds should comprise the majority of investments in your 30s for growth potential. Focus on diversification across market caps, sectors, and geography. Index funds that track the broader market are a smart, low-cost choice. Investing heavily in your company’s stock could leave you overexposed, so aim to limit company stock to 10% or less of your total portfolio.
Maintain an emergency fund
Before directing all extra savings to retirement, be sure to build up an emergency fund with 3-6 months of living expenses. This fund in an FDIC-insured savings account prevents having to tap retirement savings should an unexpected need arise. It also provides stability during market downturns. Having this emergency buffer makes it safer to invest more aggressively for growth in your retirement accounts.
Consider supplemental retirement savings
Once maximizing 401(k) and IRA contributions, supplemental retirement accounts can further boost savings. Options like a health savings account (HSA) or investing in real estate can diversify your nest egg. HSAs offer triple tax advantages and funds that can be invested and grow. Buying rental property or your primary residence can build equity and generate additional income later in life.
Investing diligently in your 30s by maximizing tax-advantaged retirement contributions, properly allocating those investments, maintaining an emergency fund buffer, and utilizing supplemental savings vehicles will optimally position you for a comfortable retirement in the decades ahead.