Remember when you were a kid and thinking about something five years down the road felt like looking at an eternity? Or a few years later, when you were early in your working life, how much time it felt like you had left to deal with retirement?
The speed at which that window shrinks just keeps on accelerating, but even if you find yourself with, say, just five years left before you plan to retire, you can still make serious progress toward setting yourself up 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 large impacts when the time comes to enjoy the fruits of your labor.
1. Create a retirement plan
Let's begin with the planning part. Create a road map, a flowchart, or whatever works for you, that reflects how you want to live and how you plan to pay for that lifestyle. Factor in both fixed and discretionary expenses, anticipated healthcare 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 paychecks and have time to keep building that nest egg.
2. Increase what you save
Try to max out your annual contributions to tax-advantaged retirement accounts to take full advantage of compound growth, whether it's through a 401(k), 403(b), or an IRA. At a minimum, for employer-sponsored plans that offer an employer match, contribute enough to get all the matching funds available to you.
As for maximum annual contributions allowed to such accounts, they vary according to your income and the kind of plan, but for 2023, if you're over 50, you can put up to $30,000 into most 401(k) plans and up to $7,500 into an IRA.
You may not be able to hit those ceilings, but even small increases to your retirement account contributions can make a big difference over time thanks to the power of compound growth.
3. Reduce what you owe
The ideal situation would be to enter retirement debt-free. If that's not doable for you, prioritize paying down your debts from highest interest rate to lowest. That often means beginning with credit cards. You also might consider refinancing student loans or mortgages depending on the rates and your circumstances. The less money going to debt payments, the more you can save.
4. Review and revise your insurance coverage
Get your head around what Medicare will cover for you and what you'll need to supplement that. Disability and life insurance policies also need to be reviewed. Now's a good time to consider buying long-term care insurance, too. Those policies generally get more expensive the older you get. Meeting with an insurance agent or other expert might be a good idea here. You also might well find some places to cut your coverage.
Do something now -- you'll be glad you did later
The opportunity to improve your finances over the next five years is best not ignored. Deliberate actions now can help give you flexibility later.
Small consistent steps like increasing savings, minimizing debt, optimizing benefits, and budgeting thoughtfully can add up to big differences in your financial situation over time. The key is to not delay preparations until the last minute. 2028 will be here soon, and if that's the year in which you expect to retire, every small step you take now will have a magnified impact later.