It can be challenging to receive a straight answer when you ask this question from a financial advisor. And the reason is because it can be a deeply personal question. Retirement looks different for each person and, therefore, what might be “enough” in retirement for one, may not be for someone else. The biggest problem we have with this question is, most people in their 30s have no clue what they want their retirement to look like.
So, how do you plan a trip if you don't know the destination? The answer is, you don't plan the trip yet. But you still start saving for it.
15% of your salary.
Since we don't know the destination, we start with a number that will start to put you in the right ballpark as you approach retirement throughout the years. If you are in your 30s and you are able to save 15% of your take home pay, you are putting yourself in good shape for retirement. It can be advantageous to diversify your savings into various accounts for tax purposes. Check out this video by Nick Rose where he explains this in more depth.
Here are a couple of considerations:
1) You should meet with a financial planner, yes, even (especially) in your 30s.
There’s a stigma that only people with a lot of wealth should have a financial advisor. The truth is, if you have a higher income, own a business, are set to receive a large inheritance, are going through a transition, planning for a large purchase or investment, going through a divorce, getting married, having children, or just have questions like this one pertaining to how much you should save for retirement -- all of these are good reasons to talk to a financial planner ASAP. Why? Because the expertise of someone who specializes in this area provides value to you on your journey. Why try to complete a journey blindfolded when you have a guide available to help guide you?
2) How you envision retirement, even now, matters.
When someone asks us how much they should be setting aside for retirement, our instinct as financial planners is to flip the question to ask: What do you want your retirement to look like?
As mentioned, most people in their 30s do not have much of an idea, and that’s okay. Start with a basic idea of when you want to retire, and begin thinking about what those years might look like for you. When you begin to envision your retirement years and how you would like to live them, then it becomes easier to focus in on a plan.
3) You should fine-tune it the closer you get.
The closer you get to your retirement years, the more important it becomes to fine-tune your plan to ensure you are on the right track towards the retirement lifestyle you envision for yourself. Not just financially, but in other ways as well. Preparing yourself mentally, emotionally, physically, and developing the interests you plan on pursuing in retirement, are all critical elements to a prosperous retirement.
If you are in your 30s, and you haven’t thought much about retirement, that’s okay. Your future self will be more understanding of your current self for not having much of a plan, if at least you started saving now. It can’t be understated. And if you don’t feel comfortable meeting with a financial advisor now, that’s also okay. Just start saving 15% of your take home pay, or work your way up to that, and you’ll be in good shape as you make your way towards those golden years.