After watching the recent NFL Draft, I concluded that we are all “on the (retirement) clock.” My retirement clock is set for 62 years old. This means I’ve got 6 years left to get my affairs in order before my work paycheck ends. Because I’m in crunch time, I’ve got to accelerate everything – debt reduction, savings, and right sizing my expenses.
The cool thing is we all start on the clock, but we have different timeframes to achieve our retirement goals. The real question is when will people get serious about retirement preparation. Some of us will get serious at 22 years old, 32 years old or, in my case, 49 years old.
Presenting my Top 10 best actions to take (in order of my priority) to achieve retirement before most people. These 10 will get your financial house in order. Your unique situation will allow for changes up and down the draft board, especially picks #6 – #10.
Top 5 Picks – Build The Foundation
# 1 Pick – Track Your Expenses: You can’t gain control of household expenses until you track what you are spending. You can’t retire without knowing what your expenses are (so many people do anyway).
This is a foundational move that sets the tone for anyone that is serious about saving for retirement. How do you know what you can save if you don’t know what your expenses are? I’d recommend using Personal Capital at a minimum and then transfer this data to spreadsheets.
# 2 Pick – Short-Term Emergency Funds ($1000-$2000): This covers car repairs or any unexpected bills that might hit throughout the year. Not having this type of fund is usually how people start getting into credit card trouble. Refill this fund every time you use it.
# 3 Pick – Company Match In Tax Advantaged 401(k): Fund your 401(k) up to the maximum to achieve the company match. For example, my company matches 50% of my first 6% in contributions. This means I contribute 6% and they contribute 3%. This 3% is what many calls “free money” and you have to get those funds, it’s just too easy.
# 4 Pick –Long-term emergency fund: 6+ months of fixed (versus variable like travel or entertainment) expenses. The amount of months saved really depends on the type of job you need to replace. An executive, who is replacing a larger salary, needs more time to find a like-kind job versus someone in a lower income.
# 5 Pick –Eliminate Credit Card Debt: Whether you are just getting out of school or have $25,000 in credit card debt, it needs to go. This debt destroys more wealth in America that just about anything. This pick could be any high interest rate debt (not just credit card debt).
And like any NFL draft, there is always discussion about what the order of draft picks should be. Most good teams take the best player available and compare it to their position of need. And we can do that with these picks too.
The important thing is these Top 5 things needs to be done before you move on to the next level. These are not sexy draft picks but they are foundational if you hope to retire before most of the crowd.
If you do these Top 5, then you’ve earned the right to take the next steps. These next steps are what will give you the opportunity to retire on time and before most of America.
Next 5 Picks – Retirement Bound (Our Superbowl)
# 6 Pick – Tax Advantaged 401(k) (Roth preferred or regular): Max these out to the best of your ability. The maximum contribution in 2019 is $19,000 or $25,000 ($6,000 more) if you are over 50 years old. I favor contributing to both, but I’d put a higher percentage into the Roth 401(k).
NOTE: If you don’t have access to a 401(k) or 403(b) at work, then max out your Roth IRA & Regular IRAs.
# 7 Pick – Taxable Account: You can’t (well you can) retire early without funds outside of tax advantaged status. Why? Because everything you withdraw before 59½ will be hit with a 10% penalty.
So, you need to build a taxable portfolio that consists of cash, stocks, bonds, and real estate. Regardless of how you manage your taxable account (Vanguard, rental properties, etc…), it provides important financial flexibility in retirement.
# 8 Pick – Debt Free: I’m a big fan of going into retirement debt free. It means you need less assets to maintain debt into retirement. My wife and I will go into retirement with no mortgage, no car loans, and no credit card debt. To me, being debt free is a non-negotiable for most people going into retirement.
# 9 Pick – Tax Advantaged Roth IRA: This is such a great account that delivers tax free returns and plenty of flexibility in retirement. I don’t have many regrets in life (what good will it do) but I do regret not funding a Roth for my wife and I while our income was lower.
# 10 Pick – Fee-Only Financial Planner: A fee-only advisor is a must have for most people before retirement. They can help with social security and pension options, converting 401(k)s into Roth IRAs, retirement sustainability, and more. They can confirm if you are on track or need more time to prepare for retirement.
Like the 1st five picks, these 2nd five (#6-#10) can be interchanged based on your needs, goals, and timeframe. The more of these 2nd five picks you can accomplish, the faster you will get to retirement. It will also mean your retirement will be more secure and stress free.
Conclusion
I could have written a list of 50 best actions but these 10 are can’t miss picks. Some are basic (like # 7 Taxable Account) in concept but take some research to execute. At a minimum, it gives you some things to consider as you plan your route.
The Top 5 are significant because they’ll keep you out of trouble and give you a chance to succeed. They sound simple but they are so important. They are basic blocking and tackling actions. Most people don’t have the Top 5 under control, which is why America’s retirement statistics are so dismal.
The 2nd five picks (#6-#10) are more traditional things you hear when you talk about retirement. Max out the 401(k) … WOW, I’ve never heard that before! Fund a Roth IRA … Mr. TLR is a genius! But they are relevant and needed to be written. You can’t go wrong with this list and it will improve your chances to retire before most of America.
Thanks for reading!
Mr. TLR