Retirement Savings Tips by Age- In your 30s and 40s

The savings and investment decisions you make in the decades leading up to your retirement can have a big impact on your financial security in retirement. The following retirement savings tips are designed to help you make informed decisions. Of course, the tips are general in nature, so please seek personalized retirement planning advice from us regarding your specific situation.

Prioritize saving for retirement. In your thirties and forties, you may have competing goals for your money, such as retirement and your children’s college education. Generally speaking, saving for retirement should take priority over saving or paying for your children’s college educations. The reason is simple. Your children have more options for paying for college than you have for paying for retirement.

Talk to us about how to prioritize your competing goals and how you can work toward more than one goal at a time. 

Increase your savings pace. As your salary increases, consider increasing the amount that you contribute to retirement accounts each year.

Bumping up the amount you save from say, $500 per month to $600 per month may add up to about an additional $94,870 in savings after thirty years, assuming a 6% annual rate of return.

Of course, this is a hypothetical example for illustrative purposes only, but the prior remains that even a small increase in the amount you save every month or year has the potential to really add up over time due to the power of compounding. In this example, you contribute an extra $36,000 over 30 years, resulting in an additional $94,870 in savings- $58,870 of which was the result of compounding.

Don’t forget your retirement accounts when you change jobs. By the time you are in your thirties or forties, you may have changed jobs a few times and have money in former employer’s retirement plans. Although leaving your money in a former employer’s retirement plan can be a good option, managing several retirement accounts can be a hassle. You may find it easier to manage your savings if you consolidate your old accounts into either your current employer’s retirement plan (if the plan permits it) or an IRA. Both options preserve the tax benefits associated with your savings and may make it easier for you to manage your retirement savings. There is a difference between the options, which you may want to explore with us.

Don’t clip into your retirement accounts when you change jobs. Although you can withdraw money from your retirement account when you change employers, it is rarely your best option. Why’s that? The tax cost and the opportunity cost can be enormous.

When you withdraw money from a retirement account, the taxable portion of your withdrawal, which may be all of it, will be subject to income tax. Withdraw $10,000, for example, and you may owe $2,500 in federal income tax alone, assuming you are in the 25% tax bracket. You may also owe state income tax. And you may owe an additional 10% early withdrawal tax penalty if you are not yet age 59 ½ and an exception to the penalty does not apply. That’s the tax cost.

The opportunity cost is that you give up the potential for that $10,000 to compound tax-deferred or tax-free for decades to come. Your $10,000 may amount to about $57,000 if left in a tax-deferred or tax-free account to compound for the next 30 years, assuming a 6% annual rate of return. And if your investments happen to earn 8% annually, your $10,000 will grow to more than $100,000 in 30 years. (This is a hypothetical example for illustrative purposes.)

Review your investment mix periodically. At any age, choosing the proportions of stocks, bonds, and cash (also known as your asset allocation) for your retirement accounts is not a set-it-and-forget-it proposition. Things change over time- and generally so should your investment mix. For example, as you draw closer to the time when you’ll need your money, you may want to reduce volatility in your portfolio because less time remains to potentially ride out market downturns. This is typically done by reducing the proportion of stocks in your portfolio and increasing the proportion of bonds and cash investments. For advice on your investment mix, you may want to consult with us.

For more retirement savings tips, visit our other blog posts: 

Retirement Savings Tips by Age- In your 20s 

Retirement Savings Tips by Age- In your 50s

Retirement Savings Tips by Age- In your 60s

With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our approach is to conduct business in an orderly fashion, especially in a disorderly world. Where there is uncertainty we look for facts. We call our approach evidence-based investing. Call us today at 802.878.2731 to schedule a strategy session and begin building your road map to financial success.

Article published in April 2020 edition of Eye on Money. If you would like to be added to our mail list please email