10 Things You Should Do in Your 30s and 40s to Prepare for Retirement

The sooner you invest in your portfolio, the more time your money has the opportunity to grow within it. The most important thing you can do for your retirement in your 30s and 40s is to develop a habit of saving and investing regularly. Contributing even small amounts consistently can help you create a strong foundation for achieving your retirement lifestyle goals. Whether it's through employer-sponsored retirement accounts like a 401(k) or individual retirement accounts (IRAs), getting into the habit of saving will pay off in the long run.

If you have not yet already, take full advantage of your employer-sponsored retirement plans. This can include your Traditional or Roth 401(k). Make sure to invest the amount necessary to earn the employer match, if your company offers it. Receiving the employer match is essentially free money for you to contribute towards your retirement savings, helping you achieve your retirement goals.  

In addition to your employer-sponsored 401(k), you can also contribute to an Individual Retirement Account (IRA). A Roth IRA offers tax-free growth (and tax-free withdrawals), while a Traditional IRA allows for tax-deferred growth. Consider the benefits and draw backs of each to know which fits your financial situation best. Pairing your IRA with your 401(k) can help you prepare to maintain a lifestyle you wish to achieve while in retirement.  Investing the maximum allowable amount, or as much as you are able to, into your IRA each year can help you optimize the potential of accounts available to you for your retirement living.

One of the most important steps to preparing for is analyzing and developing a clear budget for your lifestyle and lifestyle aspirations. Tracking your income and expenses can help you identify areas where you can cut back and direct those savings into your retirement accounts. Having a determined budget can also help you when you have to redefine your budget in retirement since you will already have an idea of what your current lifestyle costs you. Your budget will change in retirement, as you might incur new costs for aspects including healthcare or your retirement goals (i.e. travel, moving homes, etc.). However, defining your current budget early on can help create a good habit that supports a strong understanding of your financial goals, needs, and possibilities.

High-interest debt, such as credit card debt, can have a substantial negative impact on your ability to save for retirement. Create a plan to pay down these high-interest balances as soon as you can, so you can optimize your ability to save for the future. The interest you're paying on debt can outpace the returns you might earn on investments, so it’s important to work to eliminate this debt early on to free up more money for saving and investing.

Life can easily bring about unexpected expenses including medical bills, home repairs, or job loss. These sudden costs can damage your financial plans if you're not prepared. Holding an emergency fund for these times of need can help you protect your portfolio from these life events. Some recommend an emergency fund of three to six months' worth of living expenses to avoid dipping into your retirement savings for emergencies. This safety net can provide peace of mind throughout your financial journey.

Your investment strategy should evolve as you approach retirement. In your 30s and 40s, you can afford to take on more risk in pursuit of higher returns, but as you approach retirement age, it can be helpful shift toward more conservative investments to protect the wealth you’ve built. Review your portfolio strategy to ensure it aligns with your timeline for your retirement goals and needs.

Diversification can help you minimize risk in your portfolio, helping you protect your retirement savings while maintaining a portfolio positioned for growth. A well-diversified portfolio, you can help you protect your retirement savings by potentially reducing the impact of market volatility. Investing in multiple asset types and classes can help you carry your savings into retirement and work towards your long-term financial goals.  

Healthcare can be of the biggest expenses retirees are impacted by. Medicare may cover a portion of your healthcare costs, but it doesn’t cover everything. In your 30s and 40s, you can start planning for future healthcare needs. It is important to conduct due diligence on potential retirement healthcare costs. You can investigate Health Savings Accounts (HSAs), which allow you to save tax-free for medical expenses. You can also research long-term care insurance and other ways to prepare for future medical expenses.

What does retirement look like to you? Does it include maintaining your current lifestyle or include new lifestyle goals? Retirement means different things to different people, so identify what your personal life goals are. Do you want to retire early, travel the world, or buy a new house? By defining clear retirement goals and an intended timeline for yourself, you can better understand how much you need to save and what you’ll need to plan for. Additionally, having specific goals can make you stay motivated in your retirement saving journey.

The sooner you start preparing for retirement, the better. Your 30s and 40s offer a great opportunity to take advantage of time—potentially positioning your investments for long-term growth, reducing the stress of planning, and building a foundation for your future lifestyle. Whether you’re just beginning or already on your way, these ten steps will help you stay on track in your retirement planning financial journey.

Remember, the most important thing is to get started and stay consistent. Your future self will thank you.

Sources:

• AARP. "10 Steps to Take as You Get Ready to Retire". (December 9, 2022). Retrieved from https://www.aarp.org/retirement/planning-for-retirement/info-2022/steps-to-take-before-you-retire.html.
• Charles Schwab. "6 Things to Do If You're Nearing Retirement". (January 10, 2024). Retrieved from https://www.schwab.com/learn/story/6-things-to-do-if-youre-nearing-retirement.
• Merrill. "7 steps to prepare for your upcoming retirement". (November 21, 2023). Retrieved from https://www.merrilledge.com/article/7-steps-prepare-for-your-upcoming-retirement.