How to plan for retirement in your 30s

When you're 30-something, perhaps only a handful of years into your career, planning for life as a retiree may seem like a distant goal—and one without a lot of urgency. But the reality is that most Americans need substantial income beyond Social Security to maintain a comfortable lifestyle later in life, and building that lifestyle is much easier when you start young.

But how do you know if you're on track? While everyone's situation is different, looking at recommended retirement savings by age can be a helpful way to measure your progress.

Here are some of the investment vehicles that can help maximize your return:

Workplace-sponsored plans such as 401(k)s are usually a great place to start, in part because of their significant tax advantages. The money you contribute to the plan are made from pre-tax wages, and your contributions and earnings accumulate tax-deferred until you make withdrawals after age 59½ (depending on your plan).¹ When you are eligible for withdrawals in your plan, any funds you pull from the plan are taxed at your ordinary rate—much like your earnings are taxed today. If you want to retain your tax-deferral, consider rolling your assets to an IRA.

Many organizations will match a portion of your 401(k) contributions, further boosting your earnings potential. To avoid passing up that benefit, it's always a good idea to contribute at least enough to maximize the employer match. Moving forward, you might consider increasing your savings rate by a percentage or two each year, especially if your salary increases.

If your employer offers it, a Roth version of the 401(k) can be even more advantageous for younger workers. While your contributions to the plan are made with after-tax dollars, you're not taxed when you make qualified distributions in retirement.² Most 30-year-olds haven't yet hit their earnings peak, so you may be better off paying taxes when you are in a lower tax bracket.

Even if you don't have access to a retirement plan at your place of work, you still can reap similar tax advantages with a traditional IRA or Roth IRA. The contribution limit on these accounts is lower—you can kick in up to $6,000 in 2022, as opposed to employer retirement plans that may have higher contribution limits—although you can invest any additional amounts through a taxable brokerage account.

If you haven't thought much about how to plan for retirement at 30, there's no better time to start. That's because the money you invest today has more time to grow than the dollars you allocate later in your career. So making regular contributions now helps make it substantially easier to reach your retirement goals down the road.

For a typical 30-year-old worker expecting to retire around age 65, having a retirement account with one year's salary saved is a good rule of thumb. That means a typical worker earning $50,000 a year should have $50,000 in their retirement savings by the time they reach age 30. For many individuals with an age-appropriate asset mix, one way to measure your progress against it is meeting the one-times-your-income yardstick, which means you're on pace to support even a fairly long retirement.

It's important to realize that the one-times-your-income figure is just a recommendation, and life might be in your way of achieving it. Student loan debt, health care expenses, job loss, a global pandemic—a number of factors might have required you to adjust that target amount to something more realistic for the time being. If you're falling short, see if you can trim certain unnecessary expenses, which will enable you to get your retirement savings where it should be.

Other situations that could alter your recommended savings goal? You're planning to retire early, you want to travel extensively in retirement, you hope to purchase new real estate, or other high-cost lifestyle changes—all of these mean that you'll likely need a larger balance in order to support your ambitions.

For a more detailed look at how your nest egg is faring, the Thrivent retirement income planning calculator can help. Once you enter personalized information like your age, current savings and contribution rate, the calculator shows whether you'll have enough to meet your retirement income goals.

Finding enough room in your budget for a monthly retirement contribution isn't always easy. But it's important to get out of the starting gate quickly because every dollar you invest in your 20s or early 30s is going to be more valuable in the long run. Why? Because you'll benefit from compounding returns. That means the money you invest, say 30 years before retirement, will likely grow exponentially over time.

According to the Center for Retirement Research at Boston College, you'll stay on pace for a comfortable retirement if you started saving 10% to 15% of your income, including any employer contributions, in your 20s. Take, for example, a 22-year-old worker making $40,000 a year. Suppose she contributes $333 of pre-tax money per month—or 10% of her monthly salary—to a retirement account. Assuming an 8% annual return on her investment, she'd have more than $42,000 by her 30^th birthday. Of course, those who get a later start may have to increase that contribution rate to 15% or 20% in order to stay on the recommended savings trajectory (which means having roughly three times your salary by age 40).

One of the best ways to avoid falling behind on your monthly contributions is by automating them, which helps you avoid the temptation to spend retirement funds before they're even invested. You probably won't miss those funds because you'll have to budget as if that money didn't exist. If you don't have a 401(k) through work, you can set up an electronic funds transfer that helps build your IRA every month. And if you do have a workplace retirement plan, make sure you're contributing enough to maximize your employer's match.

It's important to realize that accumulating enough assets for retirement isn't just about how much you put away—it's also a function of how you choose to invest those dollars. But if you're not a savvy investor, you may not know where to turn. A Thrivent financial advisor can help. They can assist in building an age-appropriate portfolio compatible with your unique financial situation and goals for the future.