Retirement Plan Strategies for Clients in Their 30s
Retirement planning may be the last thing on a 30-something's to-do list. However, regardless of age, saving for retirement should be important to every client. This is where advice from a professional financial advisor comes in. Expert advice can help 30-year-olds see that with a realistic budget, smart investment strategies and a priority list, all of their personal and financial goals can be reached.
Here are five ways financial advisors can help these clients save for retirement.
List Goals and Set Priorities
Retirement may not be the top priority for 30-somethings, but it should definitely be on the list. The key to saving for multiple goals at the same time is to set priorities and allocate the largest amount of the savings budget towards the most immediate goal. Once that goal is reached clients can allocate the unused money towards the next priority and so on.
Paying off student debt and saving for a house may be top priorities for clients in their 30s, but that doesn’t mean they should neglect saving for retirement.
Continue No Matter What
When times get tough or financial emergencies come up, it’s easy to stop saving for retirement. But that’s not the way it should be. Starting to save when they’re young gives 30-somethings a big advantage when it comes to growing their net worth and contributions to retirement accounts.
Long-term retirement savings and short-term emergency savings should both be accounted for in your clients’ monthly budget. If a part of their after-tax income is allocated towards retirement savings, they will never have a reason to stop contributing- even when times get tough. (For more, see: The Average Retirement Savings by Age for 2016.)
Take Advantage of Employer Retirement Plans
Investing in your 30s is easier than some may think. If clients enter the working world full time after graduation they may have access to employer-sponsored retirement plans such as a 401(k). A 401(k) plan allows employees to contribute to a retirement account directly from their paycheck. Some employers also offer matching contributions to the plan on behalf of employees. Taking advantage of an employer-sponsored 401(k) is an easy way to start investing in your 30s.
The Benefit of Time
A major advantage of saving for retirement in your 30s is that time is on your side. Advisors should encourage clients to start saving as early as possible because more time equals lower monthly contributions. There is no rush to the finish line as 30-somethings have 30 to 40 years until retirement.
They can save less on a monthly basis thanks to the beauty of compound interest and a longer time horizon. It also means that fitting retirement savings into their monthly budget will be less of a financial strain than someone who is only starting to save for retirement later on in life.
Choose Investment Strategy Wisely
A long-time horizon also means that clients can choose from a wider variety of investment options. Assuming they’re comfortable with the risk, younger clients have the advantage of choosing aggressive investments such as growth stocks and international investments. The market will fluctuate daily and if the value of a 30-year old’s retirement portfolio drops they have the luxury of being able to wait for the investments to recover. Clients who have a shorter time horizon don’t have this freedom.
If clients choose to invest in higher risk investments, it’s important for advisors to explain the risks and rewards as well as the features and benefits of each investment. That way clients can make smart investment choices that align with their goals and comfort level. (For more, see: Are Your Investments Right for Your Age?)