Countdown to Retirement: 10 Years Away

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

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?

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.

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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.

Sandra Block
Senior Editor, Kiplinger's Personal Finance

Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.