Retirement Planning By The Decade- Your 30s

Another decade has begun and you find yourself in your 30s.  In many ways, your 30s are your most important years, as it is during this decade that most of the decisions are made which will have long-term impact on your life, including your retirement plans.   Hopefully you had started saving towards your retirement in your 20s, but if not now would be a good time to start.  Retirement planning in your 30s puts you in a unique position; in that you would have done better had you started saving years ago, and yet, you are still at an age where you can capture many of the same opportunities that you may have missed.  In your 30s the wrong move could leave you facing financial setbacks, ones that could take years to unravel. 

If you are just beginning your retirement planning, you will find yourself in one of three financial positions. You will either have no debt with no savings, no savings and debt, or a family, house, car, and everything that goes along with life at this stage in the game.  Even those individuals, who have already started to save, possibly through their employer sponsored superannuation fund, still fall more or less into one of the three categories.  Don’t despair however, always remember that it is not how old you are when you begin saving, but when you plan to use the money that counts.

So if you are just beginning, while the situation is far from dire, you do need to move quickly to take advantage of opportunities that will improve your financial position, bearing in mind your overall retirement plan.

Action plan for individuals with no debt and no savings: If you have no debt and no savings; there are some simple solutions to your retirement plan.   Begin by building an emergency account.  Do not worry about starting with a large sum of money, just start with any amount of available cash as you can increase this over time.  The main point is to ensure that you consistently save to build this fund and not withdrawing amounts to fund regular living expenses.

Next, if you haven't done so already, look into beginning to save for retirement with a tax-deductible and deferred retirement account, such as your employer-sponsored superannuation fund or an individual retirement scheme.  If you are currently saving in one of these funds or schemes look at increasing the amount, if you have not done so already, to the maximum allowed under the Income Tax Act.  

Action plan for individuals with no savings and debt: If you have no savings and debt, a much more common scenario, you can also be saving and surprisingly, without too much pain.  You may be living somewhat beyond your means, as you have financed your lifestyle with money you didn't have.  The simplest way for you to get back on track is to build a spending framework in the form of a budget.   Budgets are like road maps; they will provide you with an overview of where you are now.   They will detail your income and what you owe, showing you how much you have left to spend or save in a given period of time; usually this is done for a one-month period. Bear in mind that your money is not working for you if you are servicing debt.   It is therefore important that you stick to the budget so you can begin to have more funds available for savings and earning income as soon as possible.  There are assets you want to purchase, such as a home; asset of this type will serve you well in future years.

Action plan for individuals with family, house, car and no savings: If you fall into this last category: family, a house, a car (possibly two) and no savings, now is the time to change that.   It now becomes vitally important to begin to use your employer’s sponsored superannuation fund to jump-start your financial plan for retirement.  Most fund of this type will see the employer matching your savings, which immediately provides a return on your funds.   Work on living within your means, improving your earning power, which will in turn increase your savings and investment potential, even as you enjoy yourself.

What if you are amongst the few individuals who actually started planning for retirement in their 20s, what do you need to do now in your 30s?    You continue to keep on track.  Even as you focus on today’s opportunities and challenges, be sure to keep tomorrow in sight.  It is important that you continue to build a foundation today for the kind of life you want in retirement.   

As you establish your career and your earning power increases, your 30s are a great time to further build your retirement savings foundation.  You will want to revisit your overall retirement plan as you start to support a family, make long term purchases such as a home and pay off debts that may arise during this period, and give consideration to other changes in your life.

Your checklist in your 30s should include the following:

1.       Continue saving: Review whether you are still paying yourself as much as you can afford to save.  Target to save at least 10% of your income every month.    Consider adding a portion of or all of your net bonus or other lump sum payments to your retirement savings fund.  This will allow you to accelerate your savings.  Continue building an emergency fund, having up to a year worth of funds to cover expenses will help you weather any emergency without dipping into your retirement savings.  Do not reduce the amount you are currently saving in your company sponsored superannuation funds or individual retirement schemes despite the additional expenses you may be incurring during this period.

2.       Watch your spending:  Keep debt down, do not get derailed by debt even as you seek to raise your family or purchase a home.     Continue to manage your expenses using a budget to ensure that you are not reducing your savings to cover expenses without realizing it or determining how you recoup later on.

3.       Put your investments in the right places: In your 20s you may not have put too much thought into the amount of risk you are willing to take with your savings.  Now, as you develop a better idea of your needs and expectations, take the time to make sure your investment strategy aligns with your risk tolerance and your time horizon for retirement.    As your savings grows, it is important that you review and understand the asset allocation between the various types of investments.   It is also important that you seek professional advice to ensure you are maximizing your opportunities.

4.       Don’t let a better job derail your retirement plan:  If you getting ready to change jobs during this period or seeking opportunities overseas don’t let your retirement fund take a hit for that decision.  Too often, individuals on leaving a company opt to take cash out of their retirement savings instead of leaving it for a deferred pension on retirement.    Bad timing is also another factor that can be a costly trap.  Company sponsored superannuation funds normally requires that you work for a number of years before you are eligible for full benefits, i.e. eligible to receive the funds contributed by the employer.  This is known as vesting.  If you are about to pass a vesting milestone that will enable you to keep more, or all, of your employer’s contributions and pension benefits, it may be well worth it to wait before you leave for a better opportunity.

5.       Ensure that you are safeguarding your financial future:  As you start a family and take on additional responsibility in your 30s you need to review the safeguards you have in place to ensure that are still adequate for the changes that have occurred in your life.   You may need to increase your health insurance coverage to include your family, life and disability insurance coverage.      Planning for the distribution of your estate needs to be revisited and this will include updating your will.

6.       Refine your retirement plan:  Revisit your retirement goals and the plan you created.  Are they the same as in your 20s?  If you have since married does this plan now include the goals of your spouse?   Check your investment assets and your liabilities; are you still on target?

7.       Continue to seek Professional Advice:  Continue to maintain a close relationship with your professional advisers.   More than ever you need to have a great team of professional to support you as you continue to build your overall retirement plan.    Your Financial Advisor, Legal Advisor and Retirement Consultant, amongst others, will all have a role to play in ensuring your successful retirement at the end of the day.

8.       Continue to stay on track.   Remember this is an ongoing process and you need to stay on track to yield the desired results.  There are a lot of changes occurring during this decade of your life, but you have to remain focus on the long-term goal – a successful and financial secured retirement.   Continue to manage your finances wisely, stick to your budget, periodically review your retirement goals and ensure they are still applicable in light of the changes that may have occurred in your life; adjusting your saving and investment plans as needed, increasing your retirement savings as your income increase and updating your insurance coverage as required to ensure financial stability at critical times. 

The attitude you bring to life is more important at this stage than ever. You can see the future and have made tentative plans on how you will get there. You need to look forward to forty, and fifty, and even sixty as something worth achieving. Making the right retirement moves now will allow you to move forward with no regrets.