How should we organize our finances to effectively plan and prepare for an retirement in next 10 years?
Wow! First, congratulations! You are both making great money. You should be able to reach your goals.  Are we on the right track ? Are we doing any mistakes which we could have avoided ? Please advice if there is something that we should focus more into ! I would prioritize as follows: Get on the same page. My first red flag is that you are listing your assets separately. You and your wife own property together and are raising your daughter together. The first thing is to both be on the same page with your combined income and assets. This is critical. Set specific goals for the future. Dreaming and big-picture life planning will be the foundation for building a detailed plan for reaching your goals. You will see more progress with more sacrifice. If you both are not equally excited about the goals, you will not both be equally willing to sacrifice lifestyle now. You have the income now to be able to set yourselves up to do whatever you want in 10 years, if you can agree on what you want. Hire a financial planner you trust. Interview people, ask someone who is where you want to be in 10 years. You need someone with experience that can guide you through these questions and understands how to manage your income stream. Start saving for retirement in tax-advantaged accounts. This should be as much as 10%-15% of your income combined, so $30k-$45k per year. You need to start diversifying your investments. Real estate is great, but I would never recommend it as this large a percentage of net worth. Start saving for your child's education. Hard to say what you need here, since I don't know your goals. A financial planner should assist you with this. Get rid of your debt. Out of your $2.1M of rental real estate and land, you have $1.4M of debt. It will be difficult to start a business with that much additional debt. It will also put stress on your retirement that you don't need. You are taking on lots of risk here. I would sell all but maybe one of the properties and let it cash flow. This will free up cash to start investing for retirement or future business too. Buy more rental in the future with cash only. You have plenty of income to do it this way, and you will be setting yourself up for a great future. At this point you can continue to pile funds into any/all your investments, with the goal of using the funds to start a business or to live on. If all your investments are tied up in real estate, you wont have anything to draw on if needed for a business opportunity. You need to weigh this out in your goal and planning. What should we do to prepare for a comfortable retirement and safety You cannot plan for or see all scenarios. However, good planning will give you more options and more choices. Investing driven by fear will set you up for failure.  Spend less than you make. Be patient. Be generous. Cheers! The biggest issue is your lack of diversification.  Your real estate investments have performed quite well so far, but you have also likely enjoyed a period of unprecedented growth that is not sustainable. In the long term, stocks have always outperformed real estate investments, which tend to track more closely to the inflation rate. You need more balance for when when the real estate market cools off. You don't mention tax-deferred retirement savings accounts. You should prioritize your attention to these to keep your income tax low. Consider selling one of your investment properties if you can't adequately fund the 401k.
Part of the difficulty in this sort of planning is that you are also betting on future tax rates and comparing them with current taxes.  If you are in a low tax bracket now, but expect to be in a higher one when you take the money out, it is better to pay the taxes now.  If you are in a high tax bracket now, but expect to be in a lower one when you retire/take the money out, then it is better to defer the taxes until then.  If you think that future sessions of Congress will decide to tax withdrawals from Roth accounts, then you should contribute to traditional accounts.  The problem is that you don't know with certainty what the future will bring. So you have to make educated guesses about what might happen, and what you can do now to protect yourself from it. Ideally, plan so that even if the bad things happen, you will be reasonably comfortable. "A diversified portfolio (such as a 60% stocks / 40% bonds balanced fund) is much more predictable and reliable than an all-stocks portfolio, and the returns are perfectly adequate. The extra returns on 100% stocks vs. 60% are 1.2% per year (historically) according to https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations To get those average higher stock returns, you need to be thinking 20-30 years (even 10 years is too short-term). Over the 20-30 years, you must never panic and go to cash, or you will destroy the higher returns. You must never get discouraged and stop saving, or you will destroy the higher returns. You have to avoid the panic and discouragement despite the likelihood that some 10-year period in your 20-30 years the stock market will go nowhere. You also must never have an emergency or other reason to withdraw money early. If you look at ""dry periods"" in stocks, like 2000 to 2011, a 60/40 portfolio made significant money and stocks went nowhere. A diversified portfolio means that price volatility makes you money (due to rebalancing) while a 100% stocks portfolio means that price volatility is just a lot of stress with no benefit. It's somewhat possible, probably, to predict dry periods in stocks; if I remember the statistics, about 50% of the variability in the market price 10 years out can be explained by normalized market valuation (normalized = adjusted for business cycle and abnormal profit margins). Some funds such as http://hussmanfunds.com/ are completely based on this, though a lot of money managers consider it. With a balanced portfolio and rebalancing, though, you don't have to worry about it very much. In my view, the proper goal is not to beat the market, nor match the market, nor is it to earn the absolute highest possible returns. Instead, the goal is to have the highest chance of financing your non-financial goals (such as retirement, or buying a house). To maximize your chances of supporting your life goals with your financial decisions, predictability is more important than maximized returns. Your results are primarily determined by your savings rate - which realistic investment returns will never compensate for if it's too low. You can certainly make a 40-year projection in which 1.2% difference in returns makes a big difference. But you have to remember that a projection in which value steadily and predictably compounds is not the same as real life, where you could have emergency or emotional factors, where the market will move erratically and might have a big plunge at just the wrong time (end of the 40 years), and so on. If your plan ""relies"" on the extra 1.2% returns then it's not a reasonable plan anyhow, in my opinion, since you can't count on them. So why suffer the stress and extra risk created by an all-stocks portfolio?" Buy low and sell high.  Right now stocks are cheap (or at least cheapish).  If you wait for better forecasts, the price will be higher.  They might go down still farther, but no one knows for sure when that will happen, or where the bottom is -- despite what the talking heads on TV say.  Remember that what you really care about is sell price minus purchase price (plus dividends, but I'll ignore that).  What happens between the time you buy and the time you sell is irrelevant financially, but can be important psychologically. If it was me, and you are sure you won't need the money for at least 10 years, or better still 15-20, I would buy some index funds.  Pick something that you are comfortable with (some are more aggressive/risky than others), and then only look at it a few times a year, if that much.  Only do this as long as you are sure that you won't sell if the market drops further. That is a guaranteed way to lose money. This is what I've been doing for my retirement funds for 15 years, and its worked well so far. I have a similar plan and a similar number of accounts.   I think seeking a target asset allocation mix across all investment accounts is an excellent idea. I use excel to track where I am and then use it to adjust to get closer (but not exactly) to my target percentages. Until you have some larger balances, it may be prudent to use less categories or realize that you can't come exactly to your percentages, but can get close.   I also simplify by primarily investing in various index funds.  That means that in my portfolio, each category has 1 or 2 funds, not 10 or 20. Great questions -- the fact that you're thinking about it is what's most important. I think a priority should be maximizing any employer match in your 401(k) because it's free money. Second would be paying off high interest debt because it's a big expense. Everything else is a matter of setting good financial habits so I think the order of importance will vary from person to person. (That's why I ordered the priorities the way I did: employer matching is the easiest way to get more income with no additional work, and paying down high-interest debt is the best way to lower your long-term expenses.) After that, continue to maximize your income and savings, and be frugal with your expenses. Avoid debt. Take a vacation once in a while, too! The metric I prefer is net worth, minus the value of your home, then divide by your annual expenses.  The house is subtracted because you need to live somewhere, so its worth isn't part of retirement savings. I divide by expenses to create result that really answers how close one is to being able to retire. The target is to have 25X your required spending gap. Note, as you close in on retirement, and social security is still in place, you can use it in your planning. If I were in my 20s or 30s today, I wouldn't use it in my numbers. First priority is to set up an emergency fund of 6 months expenses. If you're going to be making ~30k a year, then that means you'll probably want to put away about 10k of it in a savings account or something else similarly liquid.  After that, paying off your student loans probably makes the most sense depending on the rate. My general rule of thumb (and I'm sure others will disagree with me) is to pay off debts that are >=6.0% first before investing. Paying off debt is a risk-free return on your money, which makes it pretty valuable. It'll let you direct more of your monthly income into retirement savings, too. After that, open up a Roth IRA.  You can put a maximum of $5500 in it for this year.  I like Betterment, but Wealthfront has a similar service. It's tough to avoid the discussion of taxes. Matthew's answer was excellent but of course, tax was part of the discussion.  In an article I wrote a while back, The 15% solution, I described how one can optimize taxes paid by using Roth (401 or IRA) while at a marginal 15%, and carefully transition to pretax to avoid the 25% bracket. It's possible to effectively save money from a 25% rate and withdraw it at 0%. (Zero is what one pays for the first $20K of a couple's income, this is the combined standard deduction and personal exemptions.) It would take $500K at retirement to produce the $20,000 withdrawal at a 4% rate. Keep in mind, this is a moving target as the numbers edge up each year.  With no match, I'd consider the Roth IRA. But I also agree, paying higher interest debt first is a wise priority. "Your retirement plan shouldn't necessarily be dictated by your perceived employment risks. If you're feeling insecure about your short-term job longevity and mid-career prospects, you will likely benefit from a thoughtful and robust emergency fund plan. Your retirement plan is really designed to fund your life after work, so the usual advice to contribute as much as you can as early as you can applies either way. While a well-funded retirement portfolio will help you feel generally more secure in the long run (and worst case can be used earlier), a good emergency fund will do more to address your near-term concerns. Both retirement and emergency fund planning are fundamental to a comprehensive personal finance plan. This post on StackExchange has some basic info about your retirement options. Given your spare income, you should be able to fully fund an IRA and your 401K every year with some left over. Check the fees in your 401K to determine if you really want to fully fund the 401K past employer matching. There are several good answers and info about that here. Low-cost mutual funds are a good choice for starting your IRA. There is a lot of different advice about emergency funds (check here) ranging from x months salary in savings to detailed planning for each of your expenses. Regardless of which method you chose, it is important to think about your personal risk tolerance and create a plan that addresses your personal needs. It's difficult to live life and perform well at work if you're always worried about your situation. A good emergency plan should go a long way toward calming those fears. Your concern about reaching mid-life and becoming obsolete or unable to keep up in your career may be premature. Of course your mind, body, and your abilities will change over the years, but it is very difficult to predict where you will be, what you will be doing, and whether your experience will offset any potential decrease in your ability to keep up. It's good to think ahead and consider the ""what-ifs"", but keep in mind that those scenarios are not preordained. There isn't anything special about being 40 that will force you into a different line of work if you don't want to switch." Mostly you nailed it.  It's a good question, and the points you raise are excellent and comprise good analysis. Probably the biggest drawback is if you don't agree with the asset allocation strategy.  It may be too much/too little into stocks/bonds/international/cash.   I am kind of in this boat.  My 401K offers very little choices in funds, but offers Vanguard target funds.  These tend to be a bit too conservative for my taste, so I actually put money in the 2060 target fund.  If I live that long, I will be 94 in 2060.   So if the target funds are a bit too aggressive for you, move down in years.  If they are a bit too conservative, move up. For a more philosophical way to approach this, consider money saved as the opposite of money owed: This philosophy works for things which you may be able to borrow for (computer, car, house), but also for things you can't borrow for (retirement, giving to your kids, etc.). As others have mentioned, the 10% suggestion is for retirement, but the actual number depends on your lifestyle. As you can see in this chart, saving 10% of your income means you'll need to work for 51.4 years. The 10K in savings and money market is equal to about 1.5 months of income for emergency funds. You should add additional funds to this account over the next few years to let that increase to 3 to 6 months of monthly expenses. This money should be kept secure so that it will be there when you need it. Growth is not the primary function for this account. Investment at this stage should be for retirement. This means take advantage of 401K matching if it is available. You will have to determine if Roth or regular makes the  most sense for you. In general the lower your current tax bracket the more sense Roth makes for you. If you want an IRA again decide which type. Also remember that you have until the tax deadline to make a contribution so you can decide to use a refund to fund the IRA. IRAs and 401Ks are just account types with some rules attached. They can be invested in everything from CD's to individual stocks depending on how aggressive you want to be. Though I do think it is important to have a diversified portfolio for your retirement, I also think it's more important to make sure you are at no point touching this money until you retire. Taking money out of your retirement early is a sure fire way to get in a bad habit of spending this money when you need a little help. Here's a tip: If you consider this money gone, you will find another way to figure out your situation.  With that said, I also would rather not put a percentage on this. Start by building your emergency fund. You'll want to treat this like a bill and make a monthly payment to your savings account each month or paycheck. When you have a good nine times your monthly income in here, stop contributing to this fund. Instead start putting the same amount into your IRA instead. At this point you should no longer have to add to your emergency fund unless there is a true emergency and you are replacing that money. Keep in mind that the amount of money in your emergency fund changes significantly in each situation. Sit down with your bills and think about how much money you would need in the event you lost your job. How long would you be out of work? How many bills do you have each month that would need to be covered? A Budget is different for every person.  There are families making $40K/yr who will budget to spend it all. But a family making $100K of course will have a different set of spending limits for most items. My own approach is to start by tracking every cent. Keep a notebook for a time, 3 months minimum. Note, for homeowners, a full year is what it takes to capture the seasonal expenses.  This approach with help you see where the money is going, and adjust accordingly. The typical goal is to spend less than you make, saving X% for retirement, etc. The most important aspect is to analyze how much money is getting spent on wasteful items. The $5 coffee, the $10 lunch, the $5-$7 magazines, etc. One can decide the $5 coffee is a social event done with a friend, and that's fine, so long as it's a mindful decision. I've watched the person in front of me at the supermarket put 4 magazines down on the counter. If she has $20 to burn, that's her choice.  See Where can I find an example of a really basic family budget? for other responses. If you're referring to investment hedging, then you should diversify into things that would profit if expected event hit. For example alternative energy sources would benefit greatly from increased evidence of global warming, or the onset of peak oil. Preparing for calamities that would render the stock market inaccessible, the answer is quite different.  Simply own more of things that people would want than you need.  A list of possibilities would include: Precious metals are also a way to secure value outside the financial markets, but would not be readily sellable until the immediate calamity had passed. All this should be balanced on an honest evaluation of the risks, including the risk of nothing happening.  I've heard of people not saving for retirement because they don't expect the financial markets to be available then, but that's not a risk I'm willing to take.