When you are less than a decade away from retirement, it’s time to take a good look at your finances and retirement accounts. Here’s a simple, detailed timeline to follow to increase the likelihood you’ll be able to fund your retirement.
- When you’re 10 years from retirement, start making the maximum allowable contribution to your retirement accounts if you’re not already doing so and aggressively reduce your debt obligations. You should also consider your long-term care needs.
- At the five-year mark, if your expenses aren’t sustainable in retirement, put yourself on a glide path to a spending level that will be sustainable in retirement.
- Two years or so out from retirement, put together a detailed plan, review your health insurance options and update your estate documents.
When you’re 10 years away from retirement…
If you’re like many American workers, you’ve been steadily contributing to your retirement plan for years. But can you pick up the pace? With your retirement countdown officially on, look at:
- Building up your retirement accounts
- Begin managing your debt and expenses.
Max Out Your Contributions
If you can afford to contribute more, consider maxing out your contribution limits to accelerate the growth of your accounts.
403(b) plans have annual limits set by the IRS.
2023 403(b) Contribution Limits
|Catch-up contribution if 50 or older||$7,500|
|Combined employee and employer contributions||$66,000|
Emory Will Match Your Contribution
Emory University offers its employees a 403(b) plan, which is like a 401(k) that churches, charities, public schools, colleges, and universities can offer. Emory’s version is a traditionally tax-deferred retirement account, with a Roth element for after-tax contributions. You elect to contribute a percentage of your salary to your plan and, depending on your eligibility and contribution amount, Emory can match it and even contribute a bit more.
You can contribute pre-tax dollars to your plan as soon as your employment begins. But to qualify for Emory’s match and employer contributions, you must:
- Be at least 21 years old
- Worked at least one year and 1,000 hours within a consecutive 12 months
Once you meet the eligibility requirements, Emory will contribute 6% of your salary and match your contribution up to 3%.
Emory’s Contribution Match Breakdown
|Emory Contribution||Eligibility||Employee Contribution|
|Basic Contribution (6% of employee salary)||x||—|
|1.5% Contribution Match||x||1% of employee salary|
|3% Contribution Match||x||2% of employee salary|
Add it all up and 11% of your salary (9% coming from Emory) could be contributed every year. If you make $100,000, you will automatically save $9,000 if you contribute $2,000. That still leaves you with $20,000 more you could contribute to your 403(b) or Roth account.
If you’re 50 or older, you can also contribute an extra $7,500 a year.
If you earn 125% or more of what the IRS defines as highly compensated – $168,750 for 2022 – you may be eligible to participate in the Emory 457(b) plan as well. While Emory doesn’t offer any match for the 457 plan, contributions you make reduce your taxable income and further increase your savings for retirement. For 2022, the contribution limit is $20,500, and there are also additional catch-up contributions you can make in the last 3 years of active employment prior to age 65.
457 plans are subject to slightly different rules when it comes to taking distributions or rolling over the funds once you retire. These rules are more restrictive than those for 403b plans, but the 457 plan is still an attractive vehicle to increase retirement savings and reduce taxable income in years in which you’re likely to be in a high-income tax bracket.
Reduce Your Debt
One way to ensure your retirement dollars last longer is by reducing your debt. Look at common forms of debt like a mortgage, car loans, and credit cards, then develop a plan to help you eliminate your debt obligation or reduce it to a level you can afford in retirement.
Consider Long-Term Care
An estimated 48% of people turning 65 will need long-term care in retirement. Paid long-term care covers a wide range of scenarios, from relatively low costs that last for a short while to nursing home care that could be needed for years. Planning out potential scenarios and weaving them into your overall retirement plan can help you determine what costs you could cover and when you might need to consider additional long-term care coverage.
Emory offers employee-paid coverage through UNUM, and there are a number of coverage options including term of coverage, amount of coverage, and type of inflation protection. If you think there is a good chance you won’t be able to afford long-term care on your own, it could make sense to look into the long-term care coverage options available to you.
When you’re five years away from retirement…
Start making concrete plans and preparing for your life during retirement.
Understand Your Lifestyle Goals
This includes things that are important to you now and things that you want to focus on after you retire. Remember, you’ll have more leisure time. Think about where you want to be – do you want to move to a warmer climate or be closer to your children and grandchildren? Think about what you want to do, like traveling more or exploring hobbies.
Build a Loose Retirement Cash Flow Plan
At this point, it’s a good idea to get a handle on your current cash flow. This is helpful for a couple of reasons. First, understanding what you’re currently spending is the most accurate starting point for determining what you’ll spend in retirement. Second, knowing where your money goes will allow you to determine where you can reduce spending, if necessary, as you transition to retirement. You might find you don’t need to reduce spending at all, but even in that case, this exercise is still helpful because it provides the security of knowing that you’re on a sustainable path.
Course Correct Your Savings Plan
If you find that you aren’t saving enough to meet your needs, look at ways to make up the deficit. We’ve already suggested maxing out your contributions or contributing more to a Roth account.
Look at the other end of the equation, too: your expenses. If you eliminate more of your debt or give less money to your children, does your cash stretch a little further?
Again, your goal is to make sure you can maintain your lifestyle during retirement for as long as needed.
When you’re two years away from retirement…
You need to start putting the puzzle pieces together.
A Clear Plan to Meet Your Goals and Financial Requirements
At this point, you should have most of the pieces you need to put together your retirement plan. You know what your expenses are and you’ve established a glide path – if needed – for retirement. You have thought through what you want retirement to look like and you have considered healthcare coverage and contingencies. At this point, you’ll want to confirm the amount of Social Security and any other income you’ll have in retirement. Additionally, if you’ve contributed to the 457b plan, you’ll want to determine how you want to withdraw the 457 funds. Income leads to taxes, so don’t forget to come up with an estimate of your tax burden moving forward.
Once you’ve put all of this together, you can now assemble a picture of how much you’ll need for retirement as well as how you’ll fund those needs on a year-by-year basis.
Plan for Healthcare Coverage Transition
You can enroll in Medicare as early as 3 months before you turn 65. If you enroll in traditional Medicare, you’ll need to pay for Medicare Part B and Part D, and nearly all of our clients purchase supplemental Medicare coverage – a.k.a. – Medigap as well. Medicare has very strict enrollment deadlines and policies, so make sure you understand those deadlines.
As you plan for Medicare, make sure to take a close look at formularies as network coverage to ensure that your key prescriptions and medical care providers are covered.
Review Other Insurance Coverage
If you have other insurance coverage – particularly life insurance – review the coverage to confirm it’s still needed. Life insurance, in particular, may be optional if the reason for purchasing it was to substitute for your earned income if you were to die prematurely.
Putting it All Together
Preparing for retirement is a good deal of work, but it’s a fraction of the work you put in for 40 or more years to get to retirement. Emory provides some guidance on the steps you need to take to retire, but if you’d like help in building a comprehensive, in-depth retirement plan that shows you, year-by-year, how retirement will work, schedule some time to talk with us.