How to Save for Retirement on $30,000 a Year

It's important to save for retirement because Social Security won't come close to replacing your paycheck in full. And you'll likely need income beyond those monthly benefits to cover your various expenses. 

But what if your salary is limited to $30,000 a year? Clearly, in that situation, you're apt to have a much harder time funding an IRA or 401(k) than someone earning, say, $100,000 a year. 

That doesn't mean that it can't be done. And if you follow these tips, you might manage to build a nice nest egg, even if your income is lower.

1. Snag your 401(k) match

Dave Ramsey says that you should aim to save 15% of your income for retirement. And of course if you can save more, even better. 

If you earn $30,000 a year, saving 15% of your income means allocating $4,500 a year to retirement savings. But you may not have to put in all of that money yourself. 

Many companies that sponsor 401(k) plans also match worker contributions to some degree. It may be that your employer is willing to match up to $2,000 a year in contributions. In that case, if you put in $2,500 of your own money, you'll get $2,000 from your employer to meet your $4,500 goal. 

2. Follow a strict budget

When you don't earn a very high income, every dollar counts. And it's important to make sure you know where every dollar is going. 

To that end, following a budget should help. List your monthly expenses and add retirement savings as a line item. Allocate funds to those costs and then see how much money you have left over. 

Your remaining funds can be used for non-essential expenses like streaming services and social outings. But if you prioritize your retirement savings, you might manage to keep up with your retirement plan contributions despite not earning a ton of money. 

Smaller contributions can go a long way over time

You might assume that if you're only contributing a small amount to your IRA or 401(k), then you're not going to end up with very much retirement wealth. But actually, that's far from true.

First of all, just because you're earning $30,000 a year right now doesn't mean that's what your salary will look like forever. But let's say that is the case, and you're only able to save $4,500 a year (or $375 a month) for retirement over 40 years. 

If you invest your savings at an average annual 10% return before inflation, which is consistent with the stock market's average, as measured by the S&P 500, you'll end up with a nest egg worth about $2 million. Yes, you read that correctly. And if you make savvy choices, you might manage to part with that money year after year. 

Granted, you may need to do things like drive an inexpensive car (or even go without a car if that's possible), rent a smaller home or buy one that doesn't come with a large mortgage loan, and make other frugal lifestyle decisions to keep up with retirement plan contributions over time. But if you're willing to do that, you may find that you wind up quite wealthy in retirement, despite not earning a whole lot of money for most of your career.