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If you have 10 years before retirement


if you have 10 years until retirement

The November issue of Money magazine contains a bunch of retirement articles. It must be their retirement issue. I am planning to evaluate each article one at a time to see if I agree with their position. The first article is about preparing for retirement with a checklist for you to compare to at 10, 5, and 1 year out. Let’s do the 10 years out scenario today.


Money Magazine: Their target retirement saving is 12x your pay when you’re 65. At 10 years out, you should be at 7x your pay. If you’re not there yet, then you can try to boost saving or plan to work longer.

First of all, I disagree with using your current income as a bench mark. Your retirement depends on what you spend. If your expense is 50% of your pay, then you probably don’t have to save as much. For us, we didn’t save up 12x our pay before I retired from my engineering career. However, now that I’m not working anymore, we probably do have around 12x our current annual take home. People close to retirement age should examine their expenses and cut them before they retire. 12x also seems kind of low. I think saving up 25x your expense is safer. Working longer is a good option too, but I think working part time is the way to go when you are near retirement.

Unsync with spouse

Money Magazine: Many couples retire around the same time, but quitting in tandem may not be a good move. The average length of widowhood is 12 years, per the Center for Retirement Research at Boston College. If one spouse works longer, you can withdraw less from the portfolio in the crucial initial year.

I’ll have to agree with this. Some readers don’t like that I’m retired while Mrs. RB40 still works full time. The benefit of one spouse working is huge. The longer you can hold off withdrawal, the better off you’ll be during your full retirement. Keeping one spouse on the clock will help the whole household in later years. The spouse with a full time job will really help with the health insurance situation as well. It’s great for us that Mrs. RB40 likes working at her job.

Don’t quit on stocks

Money Magazine: Retirement in our modern age can last 30 years. We need to invest for growth and stock should make up 50% to 60% of your allocation.

I still believe that investing in the stock market is good for the long term. Right now, we have only 5% – 10% invested in bonds. Once I finish my 401(k) rollover process, I’ll increase our bond allocation to around 20%. We still have 20 years before full retirement and we’ll gradually decrease our stock holding and increase our bond allocation as we age. My current allocation for stock is around 80%. Personal Capital helped me come up with the right allocation for my age. My free financial planning session went really well and I learned quite a few things.

Keep the mortgage?

Money Magazine: If the rate is less than 5%, it’s probably better off to carry the mortgage and invest the extra money instead. Refinancing into a shorter term mortgage is also a good move.

Why pay off the mortgage early when the rate is so low? It really depends on your priority. Some people don’t like to owe money and want to pay off the mortgage as soon as possible. As for me, I think a mortgage is fine as long as you can afford the monthly payment. We are paying a bit extra and plan to pay off the mortgage by the time we hit full retirement.

Manage your career

Money Magazine: Expand your skill set and hang on to your job…

This is probably a good idea if you haven’t hit your retirement saving target yet. If you enjoy your job, then keep working and saving. On the other hand, if you hate your job like I did, then a good alternative is to work part time or find something else to do. You can work longer if you enjoy what you do. Don’t work for 10 more years in a job you hate because the mental stress can wreck havoc on your health.

Delay social security benefit

Money Magazine: The earliest you can claim social security benefit is at 62 years old. If you delay until full retirement (67), then your payment will increase about 6% per year. If you can hold off until 70, you will gain another 8% per year. If you live until 80 or 90, it’s better to delay the social security benefit as long as you can. Here are a couple of options.

  • Stay on the job or work part time
  • Take spousal benefits at full retirement age and then convert to your own benefit at 70.

I think holding off on the social security benefit is a good idea. However, if you have a health issue, then it’s probably better to take it right away. We plan to delay social security benefit as long as we can. It’s still 20+ years into the future so it’s hard to forecast right now. The spousal benefit thing is pretty complicated too. You need to research to maximize the benefit. Don’t file for spousal benefit before retirement age because it will be deemed as filing for your own benefit. This will prevent your benefit from growing.


All in all, these seem like good advice for the masses. For an early retiree like me, taking up a part time job or finding different ways to generate income will be the key to delaying withdrawal. We don’t plan to withdraw from our retirement funds until we’re in our 60s. It’s good to plan even if you are in your 20s or 30s. If you are able to save up 20x your annual expense, then you will have more freedom to choose whether to retire early or change career.

Continue: If you have 5 years before retirement…

Getting ready to make the break – 1 year before retirement.

1 year into retirement – Enjoy it and stay on track. 

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 34 comments… add one }
  • NoTrustFund November 9, 2012, 3:24 am

    I love financial check-ups

    Overall I agree with most of this but in general I don’t understand why you would still want a mortgage when you retire, especially given most people retire at 65. I know rates are low but if you are retiring I’m guessing you’d have a fair amount in cash and fixed income which also have really low rates. But I know people have really different views on this issue.

  • Chris November 9, 2012, 5:08 am

    I agree that I don’t particularly want a mortgage when I’ve retired or I’m near the age of 65 too.
    But what some people say is very true. If you could save up a lot of money now, and be able to live off the monies that the investments kick-off, then you are effectively able to retire whenever you choose. For instance, if you visit http://www.early-retirement.org/, you’ll actually find several posters that have been retired or semi-retired for a decade or more and still have a mortgage. One such guy is known as “Nords” on that forum. He has often said that he’d keep refinancing to a 40 year note if it didn’t cost him that much, and he’s been retired for at least 5-6 years now (maybe more). And he retired in his 40’s and lives in Hawaii!

    • retirebyforty November 9, 2012, 8:38 pm

      Hawaii is pretty expensive. I guess that’s why he refi to 40 years and keep the monthly cost low. That’s one way to do it.

  • Thomas S. Moore November 9, 2012, 5:57 am

    I don’t mind the one spouse working. I guess it just depends on who wants to work, gets the better insurance and even the amount of income. I am not with the mortgage I would rather pay that sucker off before I retire. I don’t mind having it for a few years while I am investing but have a mortgage in retirement is just another bill to pay.

  • RichUncle EL November 9, 2012, 6:19 am

    I agree that waiting to take social security is a good thing for some, but it also depends on other factors. For example if your max age is already set, or if a republican takes the office, or if waiting a few years only increases it a few hundred dollars. If all the other income sources already cover your expenses easily and doesn’t really affect your overall lifestyle then why be greedy just take it and enjoy. The future SS program might be changed at any moment and you do not want to be on the privitized end of the stick.

    • retirebyforty November 9, 2012, 8:42 pm

      You’re right. I’ll have to see how our finances are doing when we hit 67. I don’t think I’ll take it early.
      Hopefully any changes will be for younger folks because the older folks deserve what they paid into.

  • Little House November 9, 2012, 6:54 am

    These all sound like solid tips except the mortgage during retirement. Many assumptions about what you can live off of in retirement are based around the ability to lower bills – hence no mortgage would help achieve this goal.

    • retirebyforty November 9, 2012, 8:43 pm

      No mortgage would be nice, but the reality is many retiree still have a mortgage. They can’t pay it off.
      If we stick with our payment plan, we should be able to pay off our mortgage before 67….

  • [email protected]&More November 9, 2012, 8:04 am

    I read this the other day and it definitely made some good points. I am much further than 10 years away though so I hope they publish it again later!

  • Kurt @ Money Counselor November 9, 2012, 9:40 am

    Joe, I agree 100% on the ‘bogus-ness’ of the 12x (or whatever) income as a rule of thumb to gauge savings. As you point out, it’s expenses that matter. Also, as you did, one could conform to the rule simply by taking a lower paying job, which exposes its silliness I think. Better prepare for retirement by earning less now!

    You’re also right that it’s critical one of you keep a job with health insurance benefits. You don’t want to find yourself in the world of buying private health insurance. That only potentially works if everyone’s health in your family is perfect and you can absorb 10-15% premium increases annually.

    • retirebyforty November 9, 2012, 8:47 pm

      Health insurance is such a huge problem in the US. We might have to follow your lead and move up north. 🙂

  • JayCeezy November 9, 2012, 10:34 am

    Great post, enjoying the comments, too. I do appreciate the concept of accepting the risk of equities, and having stocks as a significant percentage of a new retiree portfolio. But watching the S&P 500 at nominal 1999 levels (and inflation-adjusted 1997 levels), through two brutal bear markets in 2003 and 2008, I am not so willing to accept that risk today. I guess that is my personal risk-tolerance. If I had retired, as I thought I could (and would have met the 12x income metric) in 1999, drawn down 4% a year, the plan would have been wiped out by now in 2012. So I will leave everyone with this quote from Gen. George S. Patton: “The best plans go to h#ll, two minutes after the shooting starts!”

    • retirebyforty November 9, 2012, 8:51 pm

      Thanks for your input. It’s tough to retire into a bear market. When you’re working, you can make it up with new investments. We’ll probably just have to reduce withdrawal during the bad years.

  • krantcents November 9, 2012, 1:59 pm

    It is comforting that Money Magazine agrees with me! I am waiting until I turn 70 to start my Social Security. I will have my mortgage paid off when I retire though. I only have 5 more years to go.

  • Dave November 9, 2012, 3:46 pm

    I actually disagree with RB40 on 12x pay and using your expenses instead because I think their article ASSUMED once you retire, you don’t work anymore. Plus I would consider their targeted “normal” person to have higher expenses than the average person reading RB40’s blog. Of course I too am assuming and you know what they say about assumers…..The one thing I like about using your pay instead of expenses is you can easily estimate that where expenses fluctuate (hopefully by a fixed % per year, likely follows inflation), but its hard for me to estimate what my medical bills will be when I’m 70 since I’m only 31 now….As you mentioned, everyone’s situation is not the same, so its hard to come up with a checklist that will handle every single reader, maybe you can try and tackle that for a future blog? 🙂

    • Steve November 12, 2012, 1:31 pm

      They have to assume something. I assume that using concrete numbers draws more readers and/or advertising dollars than putting a link to an online calculator in the article. I’d bet that 90% of households in the US spend 90% or more of their income. Close enough that a rule of thumb can be formulated that would apply to almost everyone. It just happens to leave out many of the readers of this blog.

      I also assume they assume retirement at something approaching normal retirement age, and reliance on social security for income and medicare for health care. Again, true for 90% of their readers, even if some of us readers of this blog have other plans.

      • retirebyforty November 13, 2012, 2:50 pm

        I think you’re right about the baseline. They’ll have to assume something. I guess we are outliers.

  • Financial Samurai November 10, 2012, 8:41 am

    Man, it’s so much easier to get 15X your pay if you are making a massive amount less like I am now. I like it! 😉

    • retirebyforty November 11, 2012, 3:22 pm

      Life is a lot less stressful, isn’t it? 🙂

  • TAOST November 10, 2012, 3:03 pm

    Great point by point analysis. I especially like the part-time/alternative work suggestion. Many folks treat retirement as an all or none decision when you and Mrs. RB40’s scale/ladder approach likely makes a lot better sense for most…


    • retirebyforty November 11, 2012, 3:23 pm

      Thanks! I like the scale back approach much better too. A lot of people have problem adjusting to sudden retirement. It’s not an easy change.

  • bill November 10, 2012, 3:38 pm

    HOw do I add money to an IRA?

    • retirebyforty November 11, 2012, 3:24 pm

      You can open an IRA at a discount broker like Etrade and then fund it with a check.

  • [email protected] November 10, 2012, 5:03 pm

    I’d rather have the mortgage paid off before I retire. I understand that you can invest the money and have a higher return, but the security of having it paid off is just too great to pass up. Also, if a spouse loves their job then they should definitely continue working as long as they want. Even if they only worked part time it would still help the family’s financial situation.
    The only concern I have for how much I need for retirement is I’m really not sure how high healthcare costs will be. Plus, although I feel that there will be something in place, I’m not sure I want to count any form of Social Security in my plan. I can think of it as free money or something.

  • Manette @ Barbara Friedberg Personal Finance November 10, 2012, 8:17 pm

    We are looking into 20 more years before our retirement so a lot of people say that we still so much have time to save for our retirement. However, we continue to work on increasing our income, diversifying our investments, and saving for our retirement and our children’s college education. Aside from our freelance works and small business, we have also started to invest in stocks and mutual funds.

    • retirebyforty November 11, 2012, 3:25 pm

      College education is going to be the big hit for us too.

  • Jane November 10, 2012, 9:53 pm

    Great point! I plan to work as a freelancer when I retire or do online jobs. I think it’s the best way to live a stress free life while still earning money.

  • Darwin's Money November 11, 2012, 7:01 pm

    I agree w challenging the 12X thing. It doesn’t take into account what you may or may not collect on SS and if you even have a pension. Some companies (believe it or not) still offer both a 401(k) and a pension, so if you’re in that boat and replace say, 60% of your pay with pension, your amount saved could be much lower.

    • retirebyforty November 12, 2012, 8:58 am

      My parents in law have pensions and they are doing OK. It’s really nice to maintain the same lifestyle without having to stress out much. That will be more rare for our generation though.

  • Elizabeth @ Broke Professionals November 14, 2012, 11:03 am

    Read (and blogged about) that same Money Magazine article about delaying Social Security benefits – it’s amazing how much waiting even 3-4 years can do for your benefits!

  • Martin November 14, 2012, 12:27 pm

    I was jut in Buffalo as I flew to Austin, Texas. At the airport I started chatting with the shuttle driver. He told me that he retired many years ago and has lots of money. Why does he stick around? He said he does it to get out of the house and look at pretty chicks all day. That’s a pretty sweet life in the golden years.

    • retirebyforty November 15, 2012, 7:57 am

      Are there really a lot of pretty girls in Buffalo? He should move to LA. 🙂

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