The Ultimate Guide to Having a Retirement Plan in Your 30s

Estimated reading time: 11 minutes

It is possible to start saving for and having a retirement plan in your 30s if you haven’t started yet. I first want to tell you it is doable because others have done it too. And just because you did not start in your 20s does not mean that you should give up altogether. After all, better late than never. Granted, it might be a little difficult because of the responsibilities that arise as you get older, like starting families, buying a home, and having children. But the goal is to make retirement saving a priority. Here is a guide that will help you save up for retirement.

Table of Contents

• The Ultimate retirement plan guide for your 30s.
  • Have a plan
  • Have a budget
• Practical ways to have a retirement plan in your 30s.
  • Have savings accounts.
  • Traditional or Roth IRA
  • Solo 401k
  • Defined benefit plan
    • How to Choose the Best Self-Employed Retirement Plan for You
• Other investment options to consider for your retirement plan in your 30s.
  • Real estate.
  • The drawbacks and risks of real estate.
  • Mutual funds as a retirement plan.
  • Bonds
• Conclusion

The Ultimate retirement plan guide for your 30s.

Before you can find avenues to invest for retirement it is important for you to strategize and this can be done through planning and budgeting.

Have a plan

Everything starts with a vision and that is why the Bible reminds us that without a vision, people perish. What is your vision for retirement? Where do you want to live when you retire? Do you know your retirement income needs? And how much will your monthly expenditure look like? Having this goal in mind will help you identify the right strategy you will use.

Thinking about whether you will downsize after retirement or will move to get closer to the family is something you should start considering now. The reason for this plan is that you will know the expenses you need to cover to retire well. The ultimate retirement starts at age 66 years or 67 years for those born in 1960 and below.

First Name

Email address:

I have read and agree to the terms & conditions

Leave this field empty if you’re human:

Have a budget

Budgeting is one of the best things you can ever do for yourself. It helps you avoid overspending and not meeting your obligations. Budgeting allows you to avoid spending on unnecessary expenses and cut back on costs. You know these little expenses add up over time and when you have a budget, you can really see areas where you can cut back on spending. When saving for retirement, having a budget will help you avoid future financial trouble like huge debts. One of the practical tools for budgeting is having a budget plan. Whether you will use excel, pen, and paper, or software, you need to have one to help you. A budget should guide every money decision you make. And again, budgeting helps with effective retirement planning.

Check out my blog on the ultimate guide on budgeting

Practical ways to have a retirement plan in your 30s.

Have savings accounts.

Having a savings account is one of the key steps to having a retirement plan. After all, even the Bible says that you can build wealth by saving a little at a time. You don’t need to save up a lot at a time. In fact, putting away little amounts consistently is better, as this is a lifestyle you can maintain. And to paint you a picture, let me give you a practical example.

If you save $400/ month, you will need 14 years to get to $100,000 if you have saved 0 money.

Obviously, a savings account might not be the best place to invest because of the low yield, but it is a place to start. And another thing you need to note: is that as a rule of thumb, by age 40 you need to have saved 3* of your annual income. Having a savings account helps you get closer to achieving financial security in your later years and avoid being a burden or incurring debts that come from age related problems.

Proverbs 13:11: “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”

Proverbs 28:20: “A faithful man will abound with blessings, But whoever hastens to be rich will not go unpunished.”

Traditional or Roth IRA

The IRA contribution is 6500 in 2023 or 7500 if you are 50 and older. The benefit of having an IRA is that you can save up money tax-free as it has a tax-deferred option. Another benefit is that through your contribution, your Roth IRAs money can grow. It can also grow through investment appreciation. An IRA is probably the easiest way for self-employed people to start saving for retirement. There are no special filing requirements, and you can use it whether or not you have employees.

To understand the IRA that is right for you, here are a few differences.

Roth IRA

• No immediate tax benefit for contributing.
• You can withdraw contributions at any time without taxes or penalties.
• The ability to contribute is phased out at higher incomes.
• Qualified withdrawals in retirement are tax-free.

Traditional IRA

• If deductible, contributions reduce taxable income in the year they are made.
• You can phase deductions out depending on income.
• Distributions in retirement are taxed as ordinary income.
• There are required minimum distributions once you reach a certain age. That age was previously 72; in 2023, it increased to 73 and in 2033, it will increase again to 75.

Solo 401k

This one is best for a business owner or self-employed person with no employees. It, however, excludes a spouse if you have one.

The contribution limit for 2023, is $66,000, plus a $7,500 catch-up contribution or 100% of earned income, whichever is less

• In your capacity as the employer, you can make an additional contribution of up to 25% of compensation.
• There is a special rule for sole proprietors and single-member LLCs: You can contribute 25% of net self-employment income, which is your net profit less half your self-employment tax and the plan contributions you made for yourself.
• The limit on compensation that can be used to factor in your contribution is $330,000 in 2023.

The tax advantage of this method is that you don’t pay any taxes upfront. However, your withdrawals after 59.5 years are taxed. To open an account, you can do so with online brokerages. And another thing to note is that once you get to $250,000, you will file taxes.

Defined benefit plan

This is one of the best savings strategies if you have a lot of money and want to save money for retirement actively.

The contribution limit is calculated based on the benefit you’ll receive at retirement, your age, and expected investment returns.

The tax advantage in this is that contributions are generally tax deductible, and distributions in retirement are taxed as income. An actuary must figure out the deduction limit, which adds an administrative layer. Unlike pensions, this is a guaranteed source of income as it does not fluctuate like pensions. The drawback, however, is that they are very expensive with high setup and annual fees.

How to Choose the Best Self-Employed Retirement Plan for You

Choosing whether a specific self-employed retirement plan is right for you depends on a number of factors. Before you sign up for a plan, ask yourself the following questions:

1. How much do you want to save for retirement each year?

2. How much can you afford to save each year?

3. Do you plan on having employees in your business, other than your spouse? If so, how many?

4. How much time and money do you want to invest in administering your retirement plan?

Check out this blog on how to retire early

Other investment options to consider for your retirement plan in your 30s.

Aside from these traditional retirement guides, there are other investments that you could consider.

Real estate.

Passive real estate could be used to fund your retirement plan. However, it is important to note that even with benefits, there are risks involved. Let’s look at them both.

The benefits of using real estate to fund your retirement.

• Real estate can be an asset class with high returns.
• It also usually offers a hedge against inflation. Since real estate has historically been inversely correlated with conventional assets, it can be a good way to diversify your investments away from the stock market.
• It offers long-term security. You can hold it for several years and wait for it to appreciate. You can also earn a monthly income by renting it out as you wait for price appreciation.
• There are tax benefits involved with investing in real estate. You can deduct expenses associated with owning an investment property like property taxes, management fees, property insurance, and mortgage interest. If you sell your property for more, the gain will be taxed as capital gains, which come with lower tax rates.
• You can leverage funds, which means you can use other people’s money to buy properties and then pay back the money over time.

The drawbacks and risks of real estate.

• One drawback is that real estate is less liquid compared to stocks and bonds. Often it will require you to sell it for you to get the funds you need.
• The capital required to fund this kind of investment is high and often requires you to take out a loan. This means that you should have money set up for your down payment.
• The profits don’t always come quickly. You need to exercise patience.
• You should factor in the location. It is imperative that you invest in areas where the property will appreciate in time.
• There are aspects like natural disasters to consider as well as maintenance costs.

Mutual funds as a retirement plan.

Mutual fund systematic investment plan (SIP) is one of the best ways to invest for retirement planning. Through SIP, you can invest in a mutual fund scheme of your choice, based on your investment needs and risk appetite, from your regular monthly savings through auto-debit from your savings bank account. SIP can be a disciplined way of investing because it will make you control your spending habits and invest regularly. 

Read also: How to invest in mutual funds for retirement

The benefits of using mutual funds as a retirement plan.

• Flexibility on offer. With mutual funds, you can decrease or increase your contribution depending on your financial capacity at the time. You also have the ability to shift from a poor-performing mutual fund to a better-performing one if you needed to.
• You can invest in a range of funds as per your post-retirement needs. If you are starting early, you can opt for equity funds to build your retirement funds. As you near your goal, you can shift from equities to debt to protect the gains from declining due to market volatility.
• Diversification is also another advantage. This is because you can have your money invested in different sectors and industries.
• You can create wealth through the power of compounding

The drawbacks of using mutual funds as a retirement plan.

• Some mutual funds may charge either entry or exit load or both. They levy this charge primarily to maintain their operations and pay staff salaries. Sometimes, the charge may go up to a high 3% of the net investment amount. However, it mostly remains around 1%.
• While diversification might significantly reduce your risks, it may also reduce your profit margin. This may become more prominent if you invest in balanced or hybrid mutual funds.

Bonds

Bonds can also be used as a form of retirement plan. A bond is simply the loan you give corporation or government when they need funds. They do this through fundraising. When using bonds as part of a retirement plan you can use bond ladders. You could consider investing a large portion of your money on a single bond and then buy single bonds so that they can mature each year for the next 30 years. This will help you meet your annual cash flow needs. This strategy will however work if you hold your bonds to maturity.

Benefit of using bonds as a retirement plan.

• They offer a steady source of income since bonds are paid bi annually. Fixed-rate bonds pay a predetermined interest rate at regular intervals.
• Bonds are safe investments and bondholders are paid first n the event of bankruptcy. There is an obligation on their end to pay you first.
• Some bonds offer tax free income yield.

Disadvantages of using bonds as a Form of retirement plan.

• Bondholders face a capital risk incase of bankruptcy. That is should the issuer face financial problems, the bondholders might lose their investment.
• The price of bonds is inversely proportional to the interest rate. If bond prices increase, interest rates decrease and vice-versa. Hence, the total value of your bond portfolio may suffer from rising interest rates
• Bond markets are highly interlinked. Market volatility and macroeconomic factors affect bond prices irrespective of the underlying fundamentals of the issuer. The ratings allocated by credit agencies also significantly influence bond prices. Rating agencies can either upgrade or downgrade an issuer based on its financial health. A downgrade could lead to lower prices of the bond.

• 5 UNIQUE FINANCIAL TRUTHS CHRISTIAN MILLENNIALS SHOULD KNOW.
• HOW TO MANAGE YOUR FINANCES. ( 7 KEYS FOR CHRISTIAN MILLENNIALS).
• The 6 biggest financial mistakes Christian millennials should avoid now!
• A Complete Guide on Financial Distress.
• A Complete Guide On Emergency Fund For Christian Millennials.

Conclusion

Having a retirement plan is a wise thing to do. Even the Bible tells us that the wise store their choice foods and olive for the future. And again I would like to encourage you that while you might not have started saving for retirement it is still not late. Better late than never.

You should find a plan that works for you. Also endure that you get a financial advisor to help you as they will give you a tailor-made plan based on your financial position. You should not take general advice and apply to your specific situation. These are just guides to help you make informed decisions and give you financial knowledge and information.

After all it is in the presence of many wise counsel that a wise man succeeds. Join us in the next few weeks as we look at each retirement plan option in detail.