Craig Lemoine, Ph.D., CFP®, Director of Consumer Investment Research
and Jamie Hopkins, Esq., LLM, CFP®, ChFC®, CLU®, RICP®, Managing Partner, Wealth Solutions
Your 30s are here! You still feel young, still look young and, if everything is going well, might still have your ID checked while buying a bottle of wine. You may have traded a measure of adventure for security and are becoming more established in a career.
Our 30s are times we tend to move into better-paying positions — leadership or otherwise. This decade often reflects a time of starting families and buying property. Your financial planning needs get more complex than in your 20s. The following are into five areas of focus for retirement saving in your 30s.
1. Managing Debt
Like many people in their 30s, you may have accumulated a variety of debt. This could include a mortgage, car loans and credit card debt. You may also have some of your student loan debt left to pay.
Debt can be a healthy and productive mechanism to further your financial goals. We get mortgages to enhance our quality of life, we borrow for school to build human capital. Debt can also become a spiral that adds great emotional and cash flow strain to our happiness and financial goals. Consider adopting a 28/36 debt-to-income ratio, spending no more than 28% of your monthly income on housing expenses and no more than 36% of your monthly income on all expenses.
Limiting and framing debt payments to income can help keep your debt loads in check and limit the pressure that comes with owing money. If your total debt load has grown in the last few years, you’re not alone. Credit card, mortgage and auto interest rates have risen at rates well above wage growth.
If you’re under significant debt pressure, consider talking with a Certified Financial Planner™ Professional or an Accredited Financial Counselor who specializes in consumer credit and debt management.
2. Establishing Appropriate Insurance Coverage
You may feel invincible at thirty, healthy and ready to tackle the next 5k. But as more people, organizations and family finances are dependent on you, your need for insurance has never been greater. Insurance tends to fall into one of three categories:
- Insurance that protects your human capital – Life and disability insurance pay when we are unable to continue producing income. Life insurance pays a death benefit when we die, and disability coverage if we suffer a meaningful disability. Both types of policies are critical for entrepreneurs, executives, employees and anyone who brings money into a household. Talk with a qualified financial planner to ensure you have appropriate coverage to protect your family, assets and legacy if the unthinkable were to happen.
- Insurance that protects your property, as well as liability coverage – In our 30s we tend to accumulate wealth in the form of property. That property may be tangible (such as a home, car, business assets or furniture) or intangible (retirement accounts, investment accounts, copyrights and trademarks). Purchasing an appropriate amount of homeowners insurance and an auto policy can replace you for damage or losses to tangible property. Liability coverage (found in car and homeowner policies, as well as umbrella insurance) provides protection up to stated policy amounts if you are negligent and cause property or personal damage to others. If you are in an executive, medical or professional role, additional errors and omissions or malpractice insurances are critical to protecting any accumulated wealth. Ensure you have adequate property and liability protection by talking with a qualified risk management professional or comprehensive financial planner.
- Insurance that reimburses health care expenses – Health insurance is expensive, likely tied to your employer, and important. We value health insurance most in crisis situations. Dental insurance and supplemental health insurance can also enhance protections, and in our 30’s these types of policies can bring fantastic protections to growing families. Some health plans may have high deductibles and require additional resources to be set aside in the event of an emergency. However, these allow employees to contribute to tax-advantaged health care savings accounts (HSAs). Long-term care insurance also falls in this category but is often not appropriate for a consumer in their 30s. Talking with a qualified risk management professional or comprehensive financial planner can help weave together the right mix of health care coverage to protect you and your family.
3. Building Up Retirement Assets
As income increases, try to cap increasing family consumption until you’ve begun maximizing retirement savings. One guiding principle for your 30s: You should ideally be saving 10-15% of your income each year. Saving an additional 1% of you income each year can lead to tens of thousands more saved for retirement. By the end of your 30s, you should target at least three to six times your annual salary saved for retirement.
If you find yourself under pressure to meet these guidelines, take advantage of any employer retirement plan matches. Maximize contributions to any available 401(k) plans, take advantage of Roth IRA accounts if you are able. If you are self-employed, consider installing an SEP IRA or other retirement plan.
If you begin saving in your 30s, you’ll have decades to take advantage of compounding growth. Every dollar you invest towards retirement can grow for thirty, forty, fifty or sixty years before it is needed! Save consistently, keep an eye off the markets and march towards your financial goals. They don’t happen overnight. Consistent, regular savings will help you find financial freedom.
4. Starting a College Savings Plan if You Have Children
College costs continued to rise for the 2021/2022 academic year. The average annual tuition and fee cost for a public in-state university is $10,740, rising to $27,560 for out-of-state and cresting at $38,070 for private schools. These costs do not include living expenses, housing or optional fees. Fold in the extras of everyday living and college costs grow to around $30,000 annually per in-state student.1
These numbers quickly scale, compound and backflip into overwhelming costs. Using time-valued money techniques helps provide a path to clarity. Assuming the costs mentioned above, the ability to earn slightly more than inflationary pressure (3.45%) providing four years of college costs would require just over $110,300 set aside for a student beginning college next year.2 These costs increase for students going out-of-state, attending private schools or living in higher cost of living areas.
We all have different goals surrounding college savings. Some of us want to pay 100% of costs, others less; and some believe in the value of children paying their own way. Talking with an investment advisor or financial planner can help determine your goals and develop a college saving strategy that can take a huge goal and break it into bite-sized pieces.
5. Reinforcing Positive Financial Behaviors
Consider online budgeting tools, spreadsheets or even a pen and notebook. Be thoughtful with consumer debt, looking at credit cards as tools for convenience rather than credit. Purchase adequate insurance policies on your car, renters or homeowners insurance and consider life insurance if family members depend on you. Track income, expenses and build in budgeted items for future financial goals. Meeting with a qualified financial planning professional can help you begin building positive and lasting behaviors.
Your 30s are a time of building wealth, resources and love it or hate it, responsibility. As your wealth and income grows the need for additional risk protection follows. Goals begin to develop and take on added complexity. You have decades remaining for assets to grow and compound, but more pressure that might keep you from increasing savings.
Talk to a Financial Advisor
If you haven’t already done so, now’s the time to meet with a financial advisor to help you with savings and retirement goals. They’ll talk to you about your current and future financial needs and can devise a plan to help you pursue them. Reach out to us today to find a fiduciary financial advisor in your area who will put your needs first.
1 Sallie Mae, “How America Pays for College 2020.” https://www.salliemae.com/blog/infographic-how-america-pays-for-college-2020/
2 S&P Dow Jones Global, “Getting Smarter About Saving for College: Introducing the S&P Target Tuition Inflation Index.” https://www.spglobal.com/spdji/en/documents/education/education-getting-smarter-about-saving-for-college-introducing-the-sp-target-tuition-inflation-index.pdf
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
Craig Lemoine is not affiliated or registered with Cetera Advisor Networks LLC. Any information provided by Craig Lemoine is in no way related to Cetera Advisor Networks LLC or its registered representatives.