6 Steps to Get Ready for Retirement (Within 10 Years)

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Last Updated on: 16th September 2021, 06:59 pm

It’s possible to retire early without striking it big on the lottery. Better yet, it’s also possible to retire without any expert investment skills. Rather, for most of us, retiring early is a matter of dedication, consistent hard work, and strategizing. 

There’s no luck involved in preparing for retirement—either you work for it, or you don’t. If you’re willing to sweat, toil, and save now, you can prepare yourself for retirement in only 10 years. Although it’s not easy, the math is on your side. 

Follow these steps if you want to achieve financial independence within 10 years and reach a stable financial position for your retirement.

1. Ensure That You’re Growth Investing

At this stage in your life, it’s critical that you position your investments for growth instead of risk-reduction. Your retirement could last three decades or longer, so your investment strategy should reflect your long-term needs. 

If your portfolio allocation is too conservative, you may not be able to live comfortably off the returns. However, if you’re too risk-accepting in your strategy, you may not be able to weather the storm during recessions and downturns. That’s why we recommend a balanced portfolio allocation with a relatively even mix of diversified stocks, bonds, and low-fee mutual funds.

2. Max Your Retirement Account(s)

There’s no good reason not to fully utilize your 401(k), Traditional IRA, or Roth IRA accounts. A good rule of thumb is to contribute the maximum amount that your employer-matching program allows. 

It’s important to note that at age 50 you can contribute an additional $6,000 in your 401(k) and an extra $1,000 in your IRA. There are also new catch-up contribution options once you reach this age. Although it’s important to familiarize yourself with these new rule changes, the bottom line remains the same—now is the time to truly ramp-up your saving and investing strategy.

3. Settle Your Debts

This one’s fairly obvious. If your mortgage still isn’t paid, or you have outstanding student debt, lines of credit, or (at worst) credit card debt, you’ve got to take care of them as soon as possible. It might be worth taking a second job or even downsizing your house to cut away at your debt and allow you to stop making interest payments and loan repayments in your retirement age.

4. Settle On A Number

Don’t get ahead of yourself. Before you set a retirement date, you must first decide on the cash reserves you will need to maintain a comfortable retirement lifestyle for at least 30 years. To do this, start by drafting a rough budget that includes all living expenses, vehicle payments, travel costs, entertainment, and food costs.

If, for example, you find that you will need $3,000 per month to maintain your desired lifestyle during retirement, you need to ensure that you can find an income source for $36,000 annually. 

5. Follow the ‘Rule of 4’

Once you have your budget settled, you should aim to apply the “rule of 4” when it comes time to withdraw your investment proceeds. In other words, you should take out four percent of your fund’s value every year during retirement. This is a sustainable method of generating an income during retirement over several decades without depleting your investment.

Following the rule of 4 allows you to live off the dividends and interest of your investments without dipping too deeply into the principal balance. 

6. Pick Your Investment Strategy

If you decide to retire on a modest income of $3,000 per month, you would require an investment fund balance of roughly $900 thousand. This, of course, assumes that you will invest in well-performing stock market indices, such as the Dow Jones Industrial Average of the S&P 500.

Breaking It Down

At this point, you might be wondering how you can save $900 thousand within 10 years. 

Let’s do some math to break down how much exactly we would need to save. Assuming we invest in a well-performing mutual fund netting us a 10-percent annual return, we would need to invest $4,575 every month to reach the $900 thousand mark after 10 years. However, if you already have a nest egg saved up, you won’t have to save so aggressively over this period. 

Real Estate: An Alternative Option

If stock market investing isn’t for you, you can try your hand at real estate investing. Although it isn’t guaranteed to pay off in the long-run, real estate investing and house flipping can pay dividends if you allow investment properties to appreciate until you hit retirement age. 

Similarly, real estate investors can purchase income-generating rental properties that can sustain themselves during retirement. With enough rental properties paid in full, investors can live comfortably off rental income and delegate maintenance tasks to a property manager. Four three-bedroom rental homes can generate $4,000-5,500 in rental incomes monthly. 

Don’t Forget to Hedge With Alternatives

A well-balanced portfolio should include alternative assets that can safeguard your wealth during times of recession or economic downturn. Assets such as gold, bitcoin, and other cryptocurrencies hedge against stock volatility and, statistically speaking, perform very well during financial crises.

Reduce your exposure to stocks by allocating a small portion of your portfolio to safe-haven assets such as cryptocurrencies and precious metals. These alternatives have nearly no correlation with traditional stock indices like the Dow Jones Industrial Average, or currencies like the US dollar. For this reason, they’re an excellent recession-proof addition to your portfolio.

Trust the Plan

An aggressive savings plan can seem daunting or even outright impossible. However, most middle-income earners can save for retirement within 10 years if they take the right approach. A balanced investment portfolio, modest lifestyle, strict monthly savings plan, and some safe-haven alternative investments can take you from net-zero to a beachside retirement in only a decade.