Countdown to Retirement: 10 Years Away

Saving Money

Countdown to Retirement: 10 Years Away

For a smooth ride to retirement, take these financial steps when you have 10 years to go.

Illustration by Paul Thurlby

It's time to envision retirement. Now that you’re only a decade away from retirement, it’s time to start getting specific about what that will mean for you. For instance, will you travel, volunteer or work part-time? Will you move out of state, or will you stay in the same town but downsize to a smaller place?

SEE ALSO: Countdown to Retirement | 5 Years Away | 1 Year Away

This exercise might even help you reach your retirement financial goals quicker. A recent survey by investment manager Capital Group found that workers who first envisioned retirement were motivated to save nearly one-third more than they might otherwise (see To Save More, Imagine Your Retirement).

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If you’re married, make sure the two of you compare notes about retirement. “Get on the same page with your spouse,” says Judith Ward, senior financial planner with T. Rowe Price, adding that her husband had pictured retiring on a lake in Canada, but she had had something warmer in mind. “A lot of times spouses have a different vision for retirement.”

The timing of retirement can also be an area of disagreement, particularly if one spouse is much older than the other. The older spouse might assume that both of you will retire at the same time, while the younger one may not be ready to give up a career that’s at its peak. For some couples, the solution is for the older spouse to retire from a full-time job and work part-time until the second spouse is ready to retire.


Run the numbers. To maintain your lifestyle in retirement, your income from Social Security, investments, pensions and annuities will need to replace about 75% to 80% of your current gross income. (That’s roughly what many live on now after 401(k) contributions and payroll taxes are deducted from their paychecks.)

If you work with a financial adviser, have him or her run projections to see if you are on course to meet your retirement target date—or what you need to do to get on track.

For do-it-yourselfers, you can get a quick check on where you stand using an online retirement calculator. There are many; check out the ones at and, or try the one at

Calculators vary in their assumptions—say, for investment returns and inflation—so their projections will vary, too, says Missie Beach, a certified financial planner with Redwood Wealth Management, in Alpharetta, Ga. “Use several just to get an average,” she advises.


Or, for a more customized projection, crunch your own numbers. Start your calculations by estimating what your annual expenses will likely be in retirement. They may decrease if, say, your mortgage will be paid off. But be realistic; spending on certain things, such as travel, may go up. And don’t forget that inflation will take a toll. When running calculations for clients, Dana Anspach, a CFP with Sensible Money in Scottsdale, Ariz., uses a 5% annual inflation rate for health care and 3% for other expenses.

Next, add up your sources of guaranteed annual income in retirement, including Social Security and an annuity or pension. Subtract that income from your expenses. The result is how much you’ll need to pull from your portfolio each year for living costs.

Your savings may need to last 30 years or more in retirement, so make sure your annual withdrawals don’t deplete your portfolio too soon. One popular strategy for making your money last is the 4% rule. In the first year of retirement, you withdraw 4% from your 401(k) and other tax-deferred accounts, then increase the dollar amount of annual withdrawals by the previous year’s inflation rate (see Make Your Money Last).

Accelerate savings. You’re likely entering your peak earning years, plus you may have recently become an empty-nester and now have more disposable income. Instead of spending the extra cash, save it. Once you hit age 50, Uncle Sam allows you to make catch-up contributions in tax-advantaged retirement accounts.


The annual contribution limits for traditional and Roth IRAs is $6,000 for 2019, plus an additional $1,000 if you’re 50 or older. Workers this year will be able to salt away up to $19,000 in a 401(k), 403(b) or 457 plan, plus an extra $6,000 if you’re 50 or older.

Try to spread your savings across accounts that are taxed differently—say, a pretax 401(k), a Roth IRA with tax-free withdrawals, and a taxable investment account—so you can better manage taxes in retirement based on which accounts you tap. Tax diversification, Beach says, “really helps with the distributions in retirement, controlling what goes on the tax return and controlling your tax bracket.”

Open a health savings account. If you have a high-deductible health insurance plan, open a tax-friendly health savings account to go with it. Money goes into an HSA pretax (or it’s tax deductible), it grows tax-deferred, and withdrawals to pay current medical bills or even those incurred well into retirement are tax-free. “That’s the trifecta in terms of tax savings,” Ward says.

SEE ALSO: 10 Things You Must Know About Retiring to Florida

The maximum annual contribution to an HSA for 2019 is $3,500 for singles and $7,000 for families, plus an extra $1,000 if you’re 55 or older. To make the most of the tax advantages of an HSA, pay current medical bills out of pocket while you continue to invest in the HSA and allow the account to grow, says Melissa Sotudeh, a CFP with Halpern Financial, in Rockville, Md. “It is more valuable to have that growth for your future medical bills,” she says. Once you enroll in Medicare, you can no longer make HSA contributions. (One caveat: You’ll owe a 20% penalty and income taxes on withdrawals made for non-qualified purposes, although the penalty disappears once you turn 65.)


Pay down debt. Start chipping away at high-interest-rate debt, such as credit cards or personal loans.

Mortgage rates have been so low for so long that homeowners need to weigh whether they are better off accelerating house payments so they’re mortgage-free at retirement or investing the money instead. Another factor to consider: Now that the standard deduction on federal tax returns has nearly doubled, you’ll be less likely to deduct your mortgage interest.

“If wiping out all your debt helps you sleep better, then by all means pay it off, even if you have a 3.5% mortgage,” Beach says. “But keeping that 3.5% in place is not going to hurt you because over the long term your portfolio should earn more than 3.5%.” (For more advice, see New Strategies for Smart Borrowing.)

To see how much extra you must pay each month to wipe out your mortgage by retirement, use the online prepayment calculator by HSH, the mortgage information site.

Consider long-term care. Long-term care isn’t covered by Medicare—and it’s not cheap. The median annual cost in 2018 was $48,000 for assisted living, $50,340 for a home health aide who works 44 hours a week and $100,380 for a private room in a nursing home, reports Genworth, a long-term-care insurer.

You could pay the bills out of pocket (in other words, self-insure) if you have the assets. Or consider long-term-care insurance. Consumers often worry that premiums will skyrocket over time or that they will buy the insurance and never use it, says John Ryan, a CFP with Ryan Insurance Strategy Consultants in Greenwood Village, Colo. People who bought policies decades ago were shocked to see steep increases later. But today’s policies are more accurately priced—meaning premiums are higher—than those issued back then, and actuaries are not forecasting severe premium hikes in the future, says Ryan.

Shop for a long-term-care policy while you’re still young and healthy enough that premiums are more affordable. On average, people need long-term care about three years. Look for a policy with a three-year benefit period with inflation protection. Or see how much long-term care your savings could cover and buy a policy that fills the gap—making sure that you can pay for three years of care.

You and your spouse may like the flexibility of a shared-benefit rider that allows you to pool long-term-care benefits for, say, a total of six years and split them as needed. It also allows you to hedge your bets in case one spouse needs care longer than the other one does. Another option is a hybrid policy that combines long-term care and life insurance benefits. The policy will cover long-term-care bills, but if you don’t need care—or not much of it—your heirs will receive a death benefit when you die.

Portfolio checkup, 10 years out

If you haven’t changed your mix of stocks, bonds and cash for many years, your portfolio is likely overloaded with stocks. You’ll still need stocks to keep up with inflation over time. But you’ll also need to think about how much risk you can take with your portfolio without upending your retirement plans.

For a moderate-risk portfolio, consider holding up to 65% in diversified stock funds—about two-thirds of that in U.S. stocks and one-third in foreign stocks—with the rest of the portfolio made up of diversified short- and intermediate-term bond funds.

Build a stock portfolio that includes a mix of growth and value funds. Consider T. Rowe Price Dividend Growth (symbol PRDGX), Primecap Odyssey Growth (POGRX) and Dodge & Cox Stock (DODGX)—all members of the Kiplinger 25 list of our favorite no-load mutual funds. For international funds, explore Fidelity International Growth (FIGFX) or Oakmark International (OAKIX). Solid bond choices include Fidelity Total Bond (FTBFX) along with Kip 25 members DoubleLine Total Return Bond (DLTNX) and Vanguard Short-Term Investment Grade (VFSTX).

Besides stocks and bonds, you should have up to six months’ worth of living expenses in an emergency fund in case, say, you lose your job or experience a health crisis and need money to pay the bills.

SEE ALSO: 50 Best Places to Retire in the U.S.