You could be just 10 years from retirement.
Unless you're 55, you're probably skeptical. But I ask: Who defines "retirement age"? The Social Security Administration? Insurance companies? AARP? Yikes.
With a little bit of forethought and a healthy dose of discipline, retirement can come long before 65. Plan well, retire wealthy. Those are words to live by. And the inverse rings even louder: Plan poorly, retire poor. Or worse: Retire not at all.
Plan your finances wisely and you'll be writing that farewell speech to your coworkers. You'll be picking a restaurant to celebrate the dawn of your golden years, and you'll get to ponder how late you'll sleep in every day.
So don't wait -- get started down the path now.
Pay down your debts.
Of course, you should be doing this anyway, regardless of your retirement plans. But when you take your future possibilities into consideration, the "should" becomes a "must."
First of all, stop using your credit cards right away. Some people find that cutting them up is the best way to ensure they won't use them again; some take "freezing" their accounts to heart and immerse the cards in water before putting them in the icebox. Here's the bottom line: If the cards are handy, they're practically begging to be used. Eliminate this temptation by putting them out of arm's reach. (And yes, it's cheating if you memorize the numbers!)
Once you've stunted the problem, you've got to rectify it. First of all, embark on a "snowball" method of saving and pay only the minimums on all balances except for the one with the highest interest rate. Once you eliminate that debt, move on to the next highest interest rate, and so on, until you've paid off each card. (For more about snowballing and debt payoff, consult the kind folks on our Consumer Credit/Credit Cards discussion board, who will offer you all manner of tips and advice on your individual situation.)
And to pull you through, consider taking on a second job or contract work for additional income. Sure, your time will be tight for a while, but do you want your money to be tight forever instead?
Increase your 401(k) and/or IRA contributions.
Did you get a holiday bonus or end-of-year raise? Pony up and put it to work for your future. Talk about the gift that keeps on giving!
Paying yourself first is a good idea year-round, and it's certainly a winning strategy for a successful 2016 retirement. If you don't increase your contributions, or, worse, stop contributing at all, your savings will stagnate -- not a good position for them to be in at retirement time. The fact is, today's dollar may not match 2016's dollar, and you don't want to be shortchanged just because you didn't keep up with your contributions.
And good news! The dawn of 2006 brought with it increased contribution limits. For 401(k)s, 403(b)s, 457 accounts, and SARSEPs, you may now contribute $15,000 annually (with a catch-up contribution of $5,000 for those 50 and older). For SIMPLE plans, you may now sock away up to $10,000 (with a catch-up of $2,500). And while your contribution limit remains the same for traditional and Roth IRAs, your catch-up contribution has increased to $1,000. Save like the wind!
Reassess your diversification.
And while you're there, why not reassess your diversification? Take a look at your holdings and make sure your investments and funds are in perfect sync. At 10 years out, you probably want to hold back on too many risky endeavors and instead find a more conservative balance, one that will grow your money but also shield you against too much volatility. Consider index funds and the occasional fixed-income fund for the bulk of your holdings, and use more moderate-risk or higher-risk holdings to fill in the gaps based on your tolerance.
Regardless, you'll still have diversity. The Vanguard High-Yield Corporate (FUND:VWEHX), for instance, ensures a more conservative yield but with below-average risk (according to Morningstar), and the Vanguard Total Stock Market (FUND:VTSMX) offers you, well, nearly everything else -- from Chevron (NYSE:CVX) to Microsoft (NASDAQ:MSFT) to Citigroup (NYSE:C). Throw in an exchange-traded fund like SPDRs (AMEX:SPY), a large-cap growth or value holding, or a fund with a small-cap or international flair (if that's your thing) and you're on your way.
Keep some funds out of reach but close at hand.
You can do this by utilizing higher-yielding savings vehicles such as money markets, CDs, bonds, and the like. You likely won't earn nearly as nice of a return on this money, but that's not a bad price to pay for lower risk.
And there's the key. These funds are for the next five or 10 years, and they need to be flexible enough to be available in case of an emergency. If a loved one falls ill, if you face hefty house repairs, or if other unexpected expenses arise, a safety net makes all the difference. These accounts are your safety net, so plan accordingly.
But first, figure out exactly what you'd need to live on for, say, half a year should you fall on hard times. (And leave nothing out -- factor in all bills and also consider your health-care situation, as well as future financial commitments such as loan payments and the like.) If your expenses are limited to only yourself, you can likely get away with less in these low-interest-bearing accounts and more in your higher-yielding investments. However, if you have a large family, or a risky job situation, or tenuous health, you'd do well to stash a little extra away.
Me? I'm a worrier, so I deposit more in this account than I probably need to, but the peace of mind is worth it.
And that's what retirement planning is really all about, anyway -- having the peace of mind to enter the next phase of your life with minimal concern. You've got 10 years to get things in order. What are you waiting for?
What else can you do to prepare? Fool retirement guru Robert Brokamp offers solid advice in each and every issue of his Rule Your Retirement newsletter service. Click here to take a 30-day free trial, or subscribe today and get a copy of Stocks 2006 free.
Hope Nelson-Pope is online coordinating editor at The Motley Fool. She owns none of the companies mentioned in this article. Microsoft is a Motley Fool Inside Value recommendation. The Motley Fool has adisclosure policy.
