Age 30 Is the Right Time to Prepare Retirement Funds, Here's How
Retirement may feel like a distant concern when you have just turned 30. Your career is still developing, your income has the potential to increase, and living expenses are at their peak. However, it is precisely at this age that retirement preparation becomes important.
Delaying preparation until age 40 or 50 can force you to chase your target within a shorter timeframe. Conversely, starting to set aside money from age 30 gives your savings and investments more time to grow.
The compounding effect of long-term investment is also one of the reasons why starting earlier can be advantageous. So, what can be done to begin preparing a retirement fund at age 30?
Here are several steps you can consider, as reported by Fidelity.
- Determine your retirement fund target
Do not just think, ‘how much money should I have later?’, but start by imagining the kind of life you want to lead once you are no longer working. Estimate your monthly needs, housing, lifestyle and potential healthcare costs.
The retirement age you target will also influence the amount of funds you need to prepare. That target may change over time. However, having an estimated figure will make it easier to determine how much money you need to set aside each month.
- Start setting aside money regularly
You do not need to wait until your income reaches a certain level to start preparing a retirement fund. What is more important is building the habit of setting aside money consistently. As a guide, Fidelity uses a benchmark of around 15 per cent of annual income for retirement savings, including employer contributions if available. However, that figure is not a rule that must be applied rigidly, as everyone’s circumstances differ.
If you are not yet able to reach that percentage, you can start from a realistic figure and then increase it gradually.
- Make use of income increases
Your thirties are usually a period when your career begins to progress. When you receive a pay rise, bonus or additional income, do not immediately spend it all on upgrading your lifestyle. A portion of that additional income can be diverted to your retirement fund. In this way, your savings can grow without feeling too burdensome because you do not need to cut your spending drastically.