Though there’s no official retirement age in the U.S., it’s pretty common for people to retire in their 60s. IRAs and 401(k)s are off-limits until age 59 and 1/2, Social Security’s earliest claiming age is 62, and Medicare doesn’t begin until 65. So for the typical person, all of that sets the stage for a workforce exit sometime in their 60s.
To break it down further, a 2024 MassMutual study found 63 to be the most optimal retirement age according to both retirees and pre-retirees. The actual retirees it surveyed, though, retired at 62 on average. What this means is that if you’re in your early 30s, you’re probably about 30 years from ending your career. And while that’s clearly a long time, it’s also important to start planning for that stage of life. Here are some key moves to make for retirement when you’re about 30 years out.
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Max out tax-advantaged accounts (or get as close as you can)
Unless you’re one of the lucky few who’s in line for a generous pension, a secure retirement hinges on bringing a decent chunk of savings into the mix. Social Security is not at risk of disappearing completely, but the program is facing benefit cuts that could leave you with less guaranteed income later in life. Plus, even without Social Security cuts, you can only expect those benefits to replace about 40% of your pre-retirement wages. And that assumes you earn an average salary. As a common rule of thumb, retirees are told to aim for 70% to 80% of their former income to live comfortably. There’s wiggle room with that range, but the point is to not plan to retire on Social Security alone.
That’s where your personal savings come in. And your best bet is to try to max out tax-advantaged accounts like IRAs or 401(k)s, or at least get as close as you can. If you’re in your 30s, IRAs currently max out at $7,500, while 401(k)s max out at $24,500. If you have a 401(k), any employer matching dollars you get don’t count toward your annual contribution limit.
Within the realm of IRAs and 401(k)s, you can choose between traditional accounts and Roth accounts.
Roth IRAs have income limits, while traditional IRAs and 401(k)s don’t. Neither do Roth 401(k)s, though not every workplace offers a Roth option (it’s becoming more popular, though).
If you’re single for tax-filing purposes, Roth IRA contributions are off the table if your modified adjusted gross income (MAGI) is $168,000 or more this year. If you file taxes jointly as a married couple, you can’t fund a Roth IRA if your MAGI is $252,000 or more. And if your tax-filing status is married filing separately, believe it or not, Roth IRA contributions are a no-go once your MAGI is $10,000 or more.
The main differences between traditional and Roth accounts are:
- Traditional IRAs and 401(k)s give you a tax break on contributions, but gains and withdrawals are taxed.
- Roth accounts are funded with after-tax dollars, but gains and withdrawals are tax-free.
- Traditional retirement plans eventually force you to take required minimum distributions, while Roths don’t.
If you’re a higher earner, the general convention is that it pays to get the tax break that comes from funding a traditional IRA or 401(k) now and consider a Roth conversion down the line. But your best bet is to talk to a financial advisor or tax professional to see what they recommend.
No matter how much you contribute to your IRA or 401(k) or which type you choose, the key is to start funding that account as soon as possible. The more time you give your money to grow, the larger a nest egg you’re apt to wind up with.
Increase your exposure to stocks
With 30 years until retirement, you have a long investing window ahead of you. That allows you to take on a decent amount of risk in your portfolio.
If you’ve never put money into the stock market before, you may be nervous to do so. But one thing to keep in mind is that stocks have historically outperformed other asset classes over the long term. The market also has a long history of recovering from downturns. So while your portfolio might lose money some years, over a 30-year period, it’s more likely to gain value.
Now you may find the idea of choosing individual stocks for your portfolio daunting. If so, an easy way to invest in the stock market is through low-cost index funds and ETFs (exchange-traded funds). As a starting point, look at different S&P 500 or total stock market funds. These give you exposure to a range of companies across different segments of the market. Once retirement gets closer, you can shift away from stocks to reduce your portfolio’s risk profile. But if you’re in your 30s, now’s the time to take on risk, since you’re probably not touching your portfolio for a good number of decades.
Get rid of high-interest debt
The more debt you have, the more money you spend on interest. That’s money you won’t have available to save and invest with. And so now’s the time to work on minimizing your debt — especially high-interest debt like credit card balances. Of course, certain loans are meant to be paid off over a long period of time. So if you’re in your 30s, don’t stress about paying off your mortgage. It’s those pesky credit card balances you should try whittling down so interest payments don’t monopolize too much of your income.
If you’re juggling a bunch of different debt payments, a consolidation loan could make your life easier. Once you’ve eliminated at least some of your debt, you can redirect that money to your retirement savings.
Protect your income
Your ability to save for retirement hinges on being able to earn enough money to cover your near-term expenses and save a portion of your earnings for the future. So a big part of retirement planning is taking steps to protect your income. First, make sure you have disability insurance, which can replace a portion of your income if you’re unable to work due to an accident or illness.
Some companies offer this as part of their benefits package, but check to make sure. If you’re self-employed, you’ll need to buy it yourself. Next, put yourself in the best position to be able to keep doing what you do.
We’ve all heard that AI is coming for some jobs, and that may or may not be true. But the reality is that the workforce is changing. The more current your skills are, the more employable you’re apt to be. You may also want to look at broadening your skill set to make yourself more marketable. And don’t overlook the importance of maintaining a diverse professional network. Personal connections are often the ticket to career mobility.
Plus, anyone can get laid off at any time. The more people you know, the more help you might get in a forced job search.
The bottom line
You may not be super inclined to focus on retirement planning when that stage of life is decades away. But the decisions you make in the coming years could have a huge impact on your future years.
So to sum it up:
- Start saving for retirement immediately if you haven’t gotten started yet, and maximize IRAs and 401(k)s for the tax benefits.
- Go heavy on stocks while you can afford to take on risk in your portfolio.
- Shed high-interest debt to free up more money to save and invest.
- Protect your income with the right insurance, skills, and connections.
With any luck, taking these steps in your 30s will set the stage for your dream retirement — even if you’re going to have to sit tight for a while until you get there.
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