For most people in their 30s, life can feel like a breathless uphill run on a downward escalator. Everything seems to expand: families, homes, social circles, career responsibilities, and income. Managing it all requires more of your immediate attention, so it's not surprising that retirement planning tends to fall lower on the list of high priorities. For many, just making it through the day is all the long-term planning they can handle.
But the future — and your retirement — isn't going to give you a pass because you had so much on your plate when you were 30-something. Fortunately, there are some simple things you can do in your 30s to start maneuvering toward retirement even if you're stretched thin right now.
Adopt an effective mindset
Key to solving this dilemma — a future demanding attention and a present with no time — is to keep the mindset that supports retirement goals uppermost. If you don't push yourself to think about retirement planning, it won't get done and you will slowly eliminate the opportunity to make time work for you. (Not to mention how difficult planning for retirement will become if you start in your 40s or 50s.)
On the other hand, if you keep retirement planning uppermost in your mind in your 30s, you naturally set a framework for your decision-making process. You begin to recognize that certain decisions make it more difficult to reach financial independence but others can help you reach it — like these, for instance:
Taking on debt makes reaching retirement more difficult…
The biggest trap of a raise is thinking it enables us to make higher payments. Any financial strategy involving making payments is often not the best one for your retirement. Case in point, when we lived in Southern California, leasing cars was very popular. And every time a coworker of mine got a raise, it wasn't long before she sported a better car, with most of the raise going to the higher lease payment. My boss and I convinced her that using her promotions and raises this way was effectively stealing from her future. We kept prodding her to get out of that trap, and she has thanked us many times for helping her see it as a problem.
… BUT curbing lifestyle inflation can help you reach financial independence faster
That rising income brings enticing options. You can afford a bigger home, a nicer (and newer) car, better eating establishments, classier places for shopping, and vacations where you don't have to brush the ants from your pants every morning.
Endless opportunities present themselves on a daily basis, but the decision to afford these things comes with a price. Once you indulge in one area, it becomes harder to say no to the next opportunity.
Granted, nobody likes to use upside-down milk crates covered with paper towels for furniture the rest of their lives. However, the key to future comfort is accepting the dictum that if you could get by before your raise, you can afterward too.
You may have read about several of the people we interviewed on Get Rich Slowly a few months ago who mentioned that the key to their financial well-being was getting — and staying — out of consumer debt. Their decisions were guided by a mindset that kept planning for their futures uppermost in their thoughts.
Doing so kind of frees you up to focus on the things which specifically help you progress toward retirement. And as it is with so many things in life, some of those tasks are easy and some less so. Let's start with the easy ones:
Easy things you can do to maneuver toward retirement
1. Automate employer contributions: One of the nice things technology affords us today is the beauty of automating your contributions. It's something many people overlook — but it's an easy thing to fix. You can set and forget your contributions to your savings account for emergencies, your Roth IRA and employer retirement plans (401(k), 403(b), etc.).
By the way, your 401(k) plan should not be your only retirement planning method. A traditional or Roth IRA offers you a much wider array of investing options, including index funds not available on your employer's fund menu. Furthermore, they come without the burden of employer plan fees.
Fortunately, you can automate your IRA contributions too. And that's important because you can never make up a passed year on your IRA, perhaps the best retirement vehicle out there. Without automation, chances are you might forego the benefits an IRA may have. Time flies fast, after all. When you blink, the year is gone. So if you don't automate your contributions, you might very well find it impossible to make your full contribution before the window slams shut with the calendar.
You can also automate your emergency fund savings account, CD or money market account. Here are some options for where to open your account:
2. Harness your windfalls: Add any bonuses or gifts to your savings, CD or Roth IRA account. Simply act like you never received them — or pretend that they were given to your future retired self (not your present self). It's easy to do if you make up your mind ahead of time.
We have a friend who gets a sizable bonus every year. She never knows the exact amount, but she has a fair idea. Every year, as summer ends, she begins to think of all the things she will buy with the coming bonus. To her credit, she doesn't buy them ahead of time, nor does she spend more than the bonus amount, but by Thanksgiving there is nothing of the bonus left … and, likewise, nothing is invested or saved.
I broached the topic (gently) a time or two, but she sees that bonus as something she earned and, by golly, she is going to get her jollies out of it … this year. I've tried to think of a name for it like “lifestyle inflation,” but this is slightly different, more like an annual spree of entitlement. Don't do it. It's much easier if we decide ahead of time to dump all those unplanned income items into the IRA, CD or savings account before our greedy, entitled little minds begin spending them.
There are other things to help you take care of your retirement, but which are not quite so easy.
Not-so-easy things you can do to maneuver toward retirement
3. Focus on career advancement. It may sound like it doesn't have anything to do with retirement, but it does. The less you make, the less you can set aside for retirement. Therefore, anything you do to advance in your career improves your ability to take care of your retirement planning.
Take all the training opportunities your employer offers you. You're already on life's treadmill, why not make some of that an investment in yourself? The more you earn, the more you can invest with the automation method mentioned above too.
It may sound obvious, but I've met more than a few people who pass up on opportunities for advancement simply because their current situation is comfortable. They forget that even if it is a sacrifice in the short term, a job with higher earnings can bring future rewards … which may last a lot longer than the passing discomfort of the present. Not to say that money trumps all, but it is important to keep in mind that those decisions may have profound retirement implications, and that retirement may last a lot longer than a few years in an unpleasant assignment. Sacrificing the present for the future has many faces.
4. Budget: I've not met anybody who relishes the idea of willfully depriving themselves for the sheer joy of it. Yet, almost every person who has done well on a regular income says that budgeting was critical to their success. Some budget meticulously, others loosely; but everyone who has succeeded financially has done so with a budget.
My wife and I started with Larry Burkett's envelope system. It felt weird in the beginning; but within a few months, it became just another good habit. Today, we don't even think of being on a budget. On the other hand, planning for your retirement without a budget is almost impossible.
Most important thing to do to maneuver toward retirement
5. Make investing a habit: This harkens back to the mindset alluded to earlier. When you started out working, you made what someone euphemistically call “young money,” a flattering term for entry-level wages. Nobody feels the raises and promotions they get are what they deserve; but chances are that, by the time you turn 30, you're making more than when you started. Your young-money budget probably didn't allow much to be left over for investing, and so you might have developed a lifestyle or mindset that doesn't include investing, or doesn't assign a high priority to investing.
Maybe the raises, bonuses, and promotions you received have been so subtle they never hit you over the head with the message that it's time to invest.
But it is.
We're back to that mindset: The future isn't the nebulous thing of your 20s, the thing that never will actually happen to you. Your future is becoming more concrete every day. It may not be in your face like your kids, your boss or your other pursuits, but it will be here … soon.
There's no need to panic; but if you haven't done so yet, now is the time for the mind shift that assigns the future the priority it demands. That may be hard to accept. But the good news is that it doesn't need to absorb a lot of your time at this point.
No matter what you do for a living now, investing will be your final career because retirement is little more than living from your investments (rather than your labor). Now is the time to make that shift in your mindset to phase out things like debt and phase in investing … not later. Later will be too late.
The more time you give your investments to grow, the less your retirement planning has to intrude on your day-to-day existence. Time is the biggest single factor determining the value of your investments by the time you retire. The earlier you begin, the more you will have when you retire. And chances are you are earning enough now to be able to carve out an amount to invest with every paycheck — even if it's a small amount you set aside in a CD to begin with. If you don't, you will have squandered the most important returns on your investments.
Therefore, even though your life is rushed and pressured now, it is important to carve out a Saturday afternoon at least once a year to see where your money is going and what it is doing for you.
Our 30s are the age when, after all the twists and turns of earlier times, we settle into the groove that will become the rest of our lives. Start maneuvering toward retirement by incorporating these strategies and you'll thank yourself when you make the turn into life's final lap.
In your 30s? How does retirement planning fit into your life? Are you on track or do you need to change something to reach your goals?
William Cowie spent 30 years in senior management (CFO/CEO) before retiring. He has a bachelor's, a master's, and a partial doctorate in management and strategy. Author of the book “The Four Seasons of the Economy,” William also assists medium-sized businesses in the use of the Four Season Strategy to help them capitalize on economic cycles. He runs two blogs: Bite the Bullet Investing (investing) and Drop Dead Money (the economy) and writes for several other blogs in addition.