No Retirement Savings at 30? $1 Million Is Still in Reach

In your 20s, funding your retirement might have sounded like a good goal — for your 30s. Now that your 30s are here, you may be wondering whether it’s too late to build the nest egg of your dreams.
Good news: You’re definitely not too old to reap the benefits of investing. Getting started now gives you plenty of reasonable paths to build a healthy $1 million by retirement. Here what’s you can do to achieve that goal.

A word on advisors

You may be wondering whether you need a financial advisor to start this journey. While many investors find comfort in having a professional watch over their portfolio, that comfort comes at a price in the form of management fees.
A new approach to this dilemma has appeared in recent years. Robo-advisors, which use a computer algorithm to build and manage your portfolio for an annual fee, offer retirement savers a low-maintenance, low-cost option that still emphasizes investment performance.

Choosing the right retirement accounts

If you have a 401(k) through your employer, this is a good place to start your savings. That’s because the 401(k) has a high annual contribution limit — currently $18,000 — and contributions get swept into the account directly from your paycheck before taxes. Perhaps best of all, many employers will match your contributions, at least up to a cap.
Those employer matches make getting to $1 million much easier. Let’s pretend you make $50,000 and begin saving at age 30. Assuming 2% annual salary increases and a 6% average annual return, saving 10% each year and collecting a 3% match will net you a little over $1 million by age 67.

No 401(k)?

It’s OK if you don’t have a 401(k), or if your 401(k) lacks a company match or attractive investment options. You can also build retirement savings with an individual retirement account, such as a Roth IRA.
Unlike a 401(k), with a Roth IRA your contributions go in after tax, which means no taxes are deducted when you take the money out in retirement. Your money also grows tax-free in a Roth IRA. If you’d prefer to make pre-tax contributions, you can go with a traditional IRA, which gives you a tax deduction now but requires you pay taxes on distributions in retirement.
The downside? If you’re in your 30s, you can contribute only $5,500 to an IRA in 2017, and saving $5,500 each year won’t quite land you $1 million if you begin at age 30. At a 6% return, you’ll end up with about $740,000 at age 67 — though that’s $740,000 you’ll be able to draw on tax-free later.
But if you complement your Roth IRA by saving just 3% of your $50,000 salary in a non-match 401(k) or similar investment vehicle with an average return of 6%, you’ll end up with an additional $264,000 at age 67 — and just over $1 million in total retirement savings.

• Thinking beyond retirement

Retirement is the universal long-term goal, but it’s often treated as the only goal. You can save and invest for other things, and in your 30s, those other things tend to come up more: college for your kids, vacations with your partner or a down payment for a house.
The trick is to prioritize these goals. Retirement should come first, but you can divert money toward these other goals by saving more when you get a raise, stashing away windfalls and taking advantage of changing expenses. This will maximize the amount you have to invest toward your goals.

A.Alves