If you’re in your 30s, retirement can still feel like something you don’t have to start thinking about just yet. However, the sooner you start investing for retirement, the more time your money has to grow. Which is why if you’ve been automatically contributing a portion of your paychecks into a 401(k) account, you’ve already been taking very crucial steps to set yourself up for the future.
Select used information from Vanguard’s 2021 How America Saves Survey to look at how much money the average American in their 30s has saved up in their 401(k) account. Here’s what they found:
- Average 401(k) balance of ages 25–34: $33,272 (average); $13,265 (median)
- Average 401(k) balance of ages 35–44: $86,582 (average); $32,664 (median)
Knowing how other people stack up can help you figure out where you should be, but there aren’t any hard-and-fast rules about how much money you should have in your 401(k) account at every age. That’s because personal retirement goals will differ based on the type of lifestyle you want to have during retirement. So if your ideal retirement lifestyle is less costly than someone else’s, it’s okay to not have as much money invested as they do.
To figure out your ideal retirement lifestyle, you might consider factors like how often you’d like to travel, whether you’d like to stay in your current city or move to a lower cost of living area and what hobbies you’d like to take up.
How to start saving for retirement
Your 401(k) account is one of the best ways to start saving for retirement especially if you are contributing enough to receive the full match from your employer. For example, if your employer matches contributions of at least 4% of your salary, you’ll need to contribute at least 4% of each paycheck to your 401(k) in order to receive the match.
You can contribute up to $20,500 to your 401(k) account for 2022 (the contribution limit adjusts each year). For most people, it’s difficult to contribute enough of their paycheck to reach that $20,500 limit, so if you’re currently contributing up to your employer match amount, you’re already making solid progress.
But that doesn’t mean you can only save $20,500 a year for retirement. You can actually invest an additional $6,000 a year by opening up a traditional IRA or Roth IRA.
A Roth IRA is a powerful and highly-recommended tool you can use when it comes to saving for retirement since you can contribute after-tax money that gets invested, grows tax-free over time and can be withdrawn without paying taxes. The longer your time horizon, the more your money can grow.
There are lots of Roth IRA providers out there, like Fidelity and Charles Schwab.
If you want a hands-off approach, look into one such as Betterment or Wealthfront, since they’re robo-advisors can pick the portfolio that’s right for you and automatically adjust your allocation based on your needs and risk tolerance.
If you’re able to max out both your 401(k) account and your Roth IRA, that means you’re investing $26,500 per year for retirement — but there’s still yet another opportunity for you to save even more. You can also contribute to taxable brokerage accounts.
These accounts don’t have the same tax benefits that retirement accounts do (you’ll pay taxes any time you sell your assets and make a withdrawal). But taxable brokerage accounts can still be an important part of your retirement withdrawal strategy. Plus, there is no limit to how much you can invest through these accounts.
There are lots of brokerage account options out there but Select ranked Robinhood as the best app for active investing and Acorns as the best option for micro-investing. Acorns allows users to micro-invest using the Acorns’ Round-Ups® feature, which takes users’ spare change and puts it into ETFs. Users link their credit or debit card account to their Acorns account, and when purchases are made, the app will round up the costs to the nearest dollar and then invest that difference.
According to Acorns’ website, the average user invests more than $30 per month through the Round-Ups feature. And keep in mind that you’re investing money just by making purchases that you would make anyway.
