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Do you remember when you were a child and thinking about something five years from now seemed like looking into an eternity? Or a few years later, when you were at the beginning of your working life, how much time did you feel you had left to face retirement?
The rate at which that window shrinks continues to accelerate, but even if you have, say, only five years left before you plan to retire, you can still make significant strides in preparing yourself financially for the golden years ahead.
Here are four ways that, with some planning and discipline, you can make small changes today that can have big impacts when it’s time to enjoy the fruits of your labor.
Image source: Getty Images.
1. Create a retirement plan
Let’s start with the planning part. Create a roadmap, flowchart, or whatever works for you, reflecting how you want to live and how you plan to pay for that lifestyle. Consider fixed and discretionary expenses, anticipated health care costs, and what you can expect from Social Security and other fixed benefits, plus withdrawals at a reasonable rate from your retirement portfolio. That will help you identify potential gaps while you’re still collecting your paychecks and have time to continue building savings.
2. Increase what you save
Try to maximize your annual contributions to tax-advantaged retirement accounts to take full advantage of compounding growth, whether through a 401(k), 403(b) or IRA. At a minimum, for employer-sponsored plans that offer an employer match, contribute enough to make all matching funds available to you.
As for the maximum annual contributions allowed to such accounts, they vary depending on your income and the type of plan, but by 2023, if you are over 50, you can deposit up to $30,000 in most 401(k) plans and up to $7,500 in an IRA account.
You may not be able to reach those limits, but even small increases in your retirement account contributions can make a big difference over time thanks to the power of compounding growth.
3. Reduce what you owe
The ideal situation would be to retire debt free. If that’s not possible for you, prioritize paying down your debts from the highest interest rate to the lowest. This often means starting with credit cards. You might also consider refinancing student loans or mortgages depending on the rates and your circumstances. The less money that goes toward debt payments, the more you can save.
4. Review and review your insurance coverage.
Learn what Medicare will cover for you and what you’ll need to supplement it. It is also necessary to review life and disability insurance policies. Now is a good time to consider purchasing long-term care insurance as well. Those policies generally get more expensive as you get older. In this case, it might be a good idea to meet with an insurance agent or other expert. You may also find some places to cut back on your coverage.
Do something now; you’ll be glad you did later
It is better not to ignore the opportunity to improve your finances during the next five years. Deliberate actions now can help you be flexible in the future.
Consistent small steps, like increasing savings, minimizing debt, optimizing benefits, and careful budgeting, can make big differences in your financial situation over time. The key is not to delay preparations until the last minute. 2028 is coming soon, and if that’s the year you hope to retire, every little step you take now will have a magnified impact in the future.
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