Whether you plan to retire in a few decades or a few years, you can take steps to make yourself retirement ready. Use this checklist to build a strong retirement plan, no matter your age.
20s: Establish Good Saving Habits
Make a budget (and stick to it)
Live frugally and avoid racking up high interest credit card debt.
Start saving early
Compound interest can be your friend. Even if you can only save a little initially, compound interest may increase the value of your investment over time.
Sign up for a 401(k) through your employer
You can start saving for retirement early with a 401(k) through your employer. Try saving at least 4% of your salary into a 401(k).
Build your emergency fund
In the case of an emergency, you should have liquid assets (cash). A rainy day fund should ideally contain three to six months’ worth of expenses. Try putting 10% of each paycheck toward an emergency fund.
30s: Ramp Up Your Savings
Contribute to your 401(k)
If your employer matches a percentage of your 401(k), contribute the maximum your employer can match. Contributing as little as $500 more per year can greatly impact your retirement savings.
Don’t cash out your 401(k) if you switch employers
If you switch jobs, consider rolling your 401(k) into an IRA or your new employer’s program.
Pay off your debts
Pay off as much high interest debt from credit cards, student loans or medical bills as quickly as possible.
Start an aggressive investment strategy
At a younger age, you can afford to take more risks in your asset allocation strategy. Consult with your financial advisor, and consider putting as much as 85% of your investments in stocks and 15% in bonds.
Balance competing expenses
In your 30s, more expenses compete for your money. You may be saving for a down payment on a house or starting a college fund for your children. Don’t forget to keep saving for retirement.
40s: Take Advantage of Your Peak Earning (and Saving) Years
Max out your 401(k) and IRA contributions
You can contribute up to $18,000 per year to your 401(k) and $5,500 to your IRA. If you can’t immediately contribute the maximum, increase your contribution rate by 1% each year to build up to the maximum contribution level.
Review your retirement plan
Meet with your financial advisor to make sure you are on track with your retirement savings. You can also review your asset allocation strategy and adjust as needed.
Keep your retirement fund protected
Continue building your emergency fund with at least six months’ worth of expenses, and pay off any outstanding high-interest debts.
50s: Make the Most of Catch-Up Contributions
Make catch-up contributions toward your 401(k) and IRA
At 50-years-old, you can start contributing an additional $6,000 per year to your 401(k) and $1,000 to your IRA.
Review and update your retirement plans
Meet with your financial advisor to make sure you are still on track with your retirement savings goals to help ensure you can maintain your lifestyle in retirement.
Move toward a more conservative investment strategy
As you get closer to retirement, you may want to move to more conservative investments to protect against market volatility.
Investigate and purchase long-term care insurance
With yearly nursing home costs averaging more than $80,000 per year, consider long-term care insurance to offset out-of-pocket nursing home costs. The earlier you purchase long-term care insurance, the lower your premiums will likely be.
60s: Get Retirement Ready
Review your Social Security benefits
If you choose to start receiving Social Security benefits as early as 62-years-old, you will only receive 75% of your benefits. If you wait until the full retirement age of 66, you receive 100% of your Social Security benefits.
Develop a retirement income plan
Consult with your financial advisor to create a retirement income withdrawal strategy and find additional income sources for when you retire.
Continue contributing to your retirement accounts
As long as you are working, continue to take advantage of catch-up contributions to your 401(k) and IRA.
Enroll in Medicare
You can enroll in Medicare when you turn 65-years-old. Before then you will need to have alternative health insurance coverage.
Create a retirement budget
You can estimate your retirement expenses and plan a budget accordingly. Typically, you can expect to need 80% of your current annual income in retirement. Test how your retirement income would handle extenuating financial circumstances such as a decrease in your investment returns, moving to a nursing home or medical emergency.
To begin your retirement planning process, contact a Fifth Third Bank financial advisor today.