How does retirement sound just 10 years from today? It’s totally possible with these 5 realistic strategies.
Basic traditional approach is to work 40 years, save about 10% of your income each year. During these 40 years, you build a portfolio of risk appropriate investments. Then you stop working around age 65 and rely on your investments, social security benefits and if you’re lucky a pension. Overall, these sources should generate about 70% of your pre-retirement income.
But what if you stayed at home to raise your kids? What is you worked but could not afford to put money away?
Now you are about 10 years away from a good retirement age and you’re scratching your head to see what’s possible. I am here to tell you that you absolutely can retire in 10 years, with some significant and disciplined changes, consistency and focus. Let’s dive into 5 strategies to get you on the path to retire early.
1. Saving
It doesn’t matter how much money you make. It all comes down to your income versus your savings. You need to live like you’re on a fixed income.
If you spend 100% of your income (living paycheck to paycheck), you’ll never be able to retire. If you save over 50% of your income you may retire in 16 years, which means you need to get that savings percentage as high as possible.
A goal to keep in mind would be to live on one salary if you’re a dual income household.
2. Cut back on spending
You have to live below your means. Think about your housing. It’s most likely your biggest expense. Can you downsize to a townhome or condo to cut back on your mortgage payment? Have you ever considered buying a duplex so you can rent out the other side? That would most likely cover your mortgage and utilities.
Don’t buy and drive a brand new car. It loses value the minute you drive it off the lot. Instead drive a reliable used car. When it comes to traveling, utilize your credit cards to get cash back, bonuses and miles for hotels and flights. Make your meals at home. Don’t make any impulse buys. If a week goes by and you still really need or want an item look for a sale.
3. Avoid high interest debt
Try not to carry a credit card balance. Interest rates on credit cards are 20-24%. They will eat away your income and savings. Don’t finance things that you can’t afford. Stay away from debt that’s not a low interest, fixed rate, tax deductible loan such as your mortgage and car or maybe business if this is part of your 10 year plan.
The only acceptable debt is something that makes you more money by not paying it off like a 3 % mortgage on a rental property that makes you 9% in rental returns.
4. Analyze your income
Can you ask for a raise? Get a promotion? Change companies? Get a side hustle? Think about what you are you great at and use it to your advantage.
5. Invest
Of course there are so many options when it comes to investing. Take advantage and max out your 401k, Roth IRA and HSA accounts. They save you money in taxes. If you invest consistently and do it on auto-pilot, you don’t have to think about it.
Invest in low fees index funds that cover the entire market with companies like Vanguard or Schwab, or Fidelity. JL Collins recommends in his book “The Simple Path to Wealth”, a very easy to understand and very effective portfolio formula:
- VTSAX 75% - Vanguard total stock market index fund
- VBTLX 25% - Vanguard Total bond index fund
- 5% in cash
Check out the link to my YouTube video for more details on how you can get closer to your retirement goals!