Retirement can feel like a whole new life, and it is in a sense. But you must prepare for it if you’re going to make the most of your golden years. You can have enough money to fund your needs (and have some fun) if you get a jump start on investing years before you leave the office.
So, what should someone sitting 10 years out from retirement be focusing on at this stage in the game?
1. Separate your wants and needs
Most people work for the majority of their lives before retirement. Leaving that behind can be intimidating, but retirement isn’t nearly so scary when you have a plan. The first step to planning for retirement is figuring out how much you might need.
Time to visit your monthly budget; now’s a great time to make one if you don’t already do it. Determine where your money goes each month and how much goes to each expense. Separate your expenses into three categories: debt, needs, and wants.
Your utility bills, groceries, and rent/mortgage are necessary living expenses. Eating out, entertainment, or splurge purchases are wants. The goal is to calculate how much you’ll need to get by when you don’t have an income.
2. Evaluate and formulate a financial plan
Once you have your monthly expenses sorted, it’s time to take inventory on your current situation. There are free retirement calculators online that can crunch the numbers for you. Your goal is to have enough money to withdraw a certain amount to mimic an annual income. A basic rule of thumb is the 4% rule, but you can fine-tune the amount based on your situation and needs.
Some people might have a great start on retirement savings; others might be playing catch-up. Whatever the case, you can always make a difference between today and retirement. Paying off high-interest debts is a great way to shave your cost of living down.
Ideally, you’ll walk into retirement free of credit card debt, student loans, or other loans that can bloat your monthly budget. Again, this is unique to your situation, but you want to make things as financially easy on yourself as possible.
3. Invest to grow your money responsibly
Lastly, you’ll want to close the gap between what you have and what you’ll need while avoiding unnecessary risk. Ruining your portfolio is the last thing you need when retirement is only 10 years away. Consider focusing on a mix of index funds that track the broader stock market and Treasury bond funds to give you some growth without (hopefully) too much volatility.
You’ll also want to look at what accounts you’re putting your money in. Employer programs like a 401(k) can provide upfront tax savings and match a percentage of your contributions. A Roth IRA will save you on taxes in retirement because your contributions are taxed. Additionally, you can contribute more money to a Roth IRA if you’re 50 or older.
It’s OK to ask for help if you’re unsure how to create a plan. A responsible financial advisor can be a great asset; research and pay attention to how they’re compensated for their time. Follow these steps, and you’ll likely improve your financial foundation heading toward your golden years.