As you approach the retirement finish line, it’s easy to focus on the big savings number. But the small details you handle in these last few years can make a huge difference. Many people make costly mistakes during this time, like forgetting to update beneficiaries, underestimating healthcare costs, or claiming Social Security at the wrong time. Knowing what to do 5 years before retirement is your best defense against these common pitfalls. This guide is designed to help you sidestep those errors and make smart, informed decisions. We’ll cover the key areas where a little bit of planning now can save you significant stress and money down the road.
Key Takeaways
- Shift from accumulation to preservation: Your financial focus should now change from aggressive growth to protecting your assets. This means maximizing your final contributions, eliminating high-interest debt, and rebalancing your portfolio for more stability.
- Translate your retirement vision into a budget: Get specific about your future lifestyle by estimating all your expenses, from hobbies and travel to healthcare costs. Test-drive this budget now to ensure your projected income can support the life you want to live.
- Lock in your income and legacy plans: Make key decisions that have a lasting impact, like creating a tax-efficient withdrawal strategy, coordinating Social Security benefits with your spouse, and updating your estate plan to protect your assets and your loved ones.
5 Years to Retirement? Here’s Your Action Plan
Hitting the five-year mark before retirement is a major milestone. The finish line is in sight, and the abstract idea of “someday” is quickly becoming a reality. This is the perfect time to shift from general planning to focused action. The decisions you make in these final few years of work can have a huge impact on your financial security and lifestyle for decades to come. Getting organized now helps ensure a smooth and confident transition into the life you’ve been working so hard to build.
Think of this period as your final approach before landing. It’s your chance to review the flight plan, check all the systems, and make sure you’re ready for a smooth arrival. To help you get organized, we’ve put together an action plan covering the key areas you’ll want to focus on. You’ll want to maximize your savings by taking full advantage of catch-up contributions, create a realistic retirement budget, and develop a smart plan to pay down any lingering high-interest debt. This is also the time to align your investment strategy with your new, shorter timeline and start mapping out your healthcare plan. Finally, it’s crucial to get strategic about taxes and Social Security to make your money last. Pulling all these pieces together can feel like a lot, which is why many people choose to partner with a financial planner to create a cohesive strategy. By tackling these items one by one, you can build a clear path toward achieving your retirement goals.
Maximize Your Retirement Savings
With retirement getting closer, now is the perfect time to give your savings a final, powerful push. The financial decisions you make in these last few years before leaving the workforce can have a huge impact on your nest egg. It’s not about making drastic, stressful changes. Instead, it’s about making smart, strategic moves to build on the foundation you’ve already created. Let’s walk through four key strategies you can use to make the most of this final stretch and step into retirement with even more confidence.
Use Catch-Up Contributions
If you’re 50 or older, the IRS gives you a fantastic opportunity to accelerate your savings. It’s called a “catch-up contribution,” and it allows you to contribute more to your 401(k) and IRA accounts than the standard annual limit. Think of it as a savings power-up for the home stretch. This extra room in your retirement accounts can make a substantial difference in just a few short years, helping you close any savings gaps or simply build a bigger cushion for your future. Making these additional contributions is one of the most direct ways to fortify your financial position as you approach your retirement date.
Max Out Your Employer Match
Are you taking full advantage of your employer’s 401(k) match? If not, you could be leaving free money on the table. Many companies offer to match a certain percentage of your contributions, and failing to contribute enough to get the full match is like turning down a raise. This is one of the easiest returns on investment you can get. Over time, the combination of your contributions and your employer’s match grows and compounds, significantly adding to your retirement fund. We help our clients review their benefits to ensure they’re not missing out on these opportunities as part of our planning process.
Consider a Roth Conversion
A Roth conversion is a strategy where you move money from a traditional, pre-tax retirement account (like a traditional IRA or 401(k)) into a post-tax Roth IRA. You’ll have to pay income taxes on the amount you convert now, but in exchange, all your qualified withdrawals in retirement will be completely tax-free. This can be a savvy move if you expect to be in a similar or higher tax bracket in retirement. It gives you tax diversification, allowing you to pull from different account types to manage your tax bill each year. Deciding if a conversion is right for you involves careful planning, a topic we explore in our book, Think Ahead.
Fund Your Health Savings Account (HSA)
If you have a high-deductible health plan, your Health Savings Account (HSA) is one of the most powerful savings tools available. It offers a unique triple tax advantage: your contributions are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free. While its main purpose is to cover healthcare costs, an HSA can also act as a secondary retirement account. By funding it now, you’re building a dedicated reserve for medical needs in retirement, which helps protect your other savings. Understanding how much you need to retire includes planning for these significant, often-overlooked health expenses.
Create a Realistic Retirement Budget
Creating a budget for retirement isn’t about limiting your fun; it’s about making sure you can afford it. Think of it as a roadmap for your money, designed to guide you toward the life you’ve been working so hard to build. With five years to go, you have the perfect amount of time to draft this map, test it out, and make adjustments. This process gives you a clear, realistic picture of your financial future, replacing uncertainty with confidence. By understanding what you’ll need, you can ensure your savings are aligned with your dreams.
Track Your Current Spending
Before you can plan for your future spending, you need a solid handle on your current spending. This is a foundational step, and honestly, it’s the one most people skip. Tracking your expenses for a few months gives you pure data about where your money is going. This isn’t about judging yourself for that daily latte; it’s about understanding your habits. Use a simple spreadsheet, a notebook, or a budgeting app to see it all in black and white. Once you have a clear picture of your present cash flow, you can make informed projections about the future. We offer several worksheets that can help you get organized and start this process.
Estimate Your Retirement Lifestyle Costs
Now for the fun part: dreaming about what your retirement will actually look like. Do you plan to travel the world, or are you more of a homebody who wants to perfect a garden? Will you downsize your home or stay put? Be specific. Make a list of hobbies, travel goals, and social activities you envision. Some of your current expenses, like commuting costs or a mortgage payment, might disappear. Others, like travel and healthcare, might increase. The goal is to translate your vision into a realistic monthly and annual cost. This exercise helps you build a plan that truly reflects the retirement lifestyle you desire.
Factor in Inflation
A dollar today won’t buy a dollar’s worth of goods in 20 years. That’s inflation, and it’s one of the most critical factors to account for in a long-term budget. Forgetting to factor in the rising cost of living can leave you with a significant shortfall decades into retirement. You don’t need to be an economist, but you do need to acknowledge that the $5,000 you budget for monthly expenses will need to be higher in the future to maintain the same purchasing power. This is where working through a detailed planning process becomes invaluable, as it ensures your financial strategy is built to withstand the test of time and changing economic conditions.
Give Your Budget a Test Run
Once you have a draft of your retirement budget, it’s time for a dress rehearsal. For a few months, try to live on your projected retirement income. Move the difference between your current paycheck and your future “paycheck” into savings. This practice run is the ultimate reality check. Does the budget feel comfortable, or is it too tight? Did you forget to account for certain expenses? It’s much better to discover any gaps now, while you still have time to adjust your savings strategy or your budget itself. This test run gives you a tangible feel for your future finances and builds the confidence that your plan is not just a guess, but a workable reality.
Tackle High-Interest Debt
Entering retirement should feel like a breath of fresh air, a time when your money works for you, not the other way around. But carrying debt into this new chapter can feel like running a race with weights on your ankles. Monthly payments for credit cards, car loans, and other debts can eat away at a fixed income, creating stress and limiting your freedom. The goal in these final working years is to shed as much of that financial weight as possible, especially the high-interest kind. Think of your retirement savings as a finite resource; every dollar you pay in interest is a dollar you can’t use for travel, hobbies, or simply living comfortably.
Getting a handle on your liabilities is a fundamental part of a sound financial plan. It’s not just about the numbers, it’s about creating peace of mind. Imagine heading into retirement knowing you’ve eliminated major monthly bills. This gives you incredible flexibility and control over your cash flow. You can more easily manage unexpected expenses and say “yes” to the experiences you’ve been dreaming about. Over the next five years, you have a powerful window of opportunity to systematically reduce what you owe and set yourself up for a more secure future. Let’s look at a three-part strategy to help you get there.
Create a Debt Payoff Plan
Facing a list of debts can feel overwhelming, but creating a clear plan turns a mountain into a series of manageable steps. Start by making a simple list of everything you owe, from credit cards to personal loans, noting the total balance and the interest rate for each. The most effective strategy for most people is to aggressively target the debt with the highest interest rate first while making minimum payments on everything else. This is often called the “avalanche” method. High-interest debt, like credit card balances, grows the fastest and costs you the most money over time. By eliminating it first, you save the most on interest payments and free up cash more quickly to tackle the next debt on your list. Our free worksheets can help you get organized and track your progress.
Decide on Your Mortgage Strategy
The question of whether to pay off your mortgage before retirement is a big one, and there isn’t a single right answer. For many, owning their home outright is the ultimate symbol of financial security. Eliminating that monthly mortgage payment dramatically reduces your fixed expenses, which can be a huge relief when you’re no longer drawing a regular paycheck. This frees up hundreds or even thousands of dollars in your monthly budget. However, it’s also a strategic decision. If you have a very low mortgage interest rate, it might make more financial sense to put extra cash into investments that have the potential to earn a higher return. The best choice depends on your loan’s interest rate, your personal comfort with debt, and your overall financial picture.
Avoid Taking on New Debt
As you work hard to pay down your existing balances, it’s equally important not to add new ones. The five years leading up to retirement are the perfect time to take care of major expenses while you still have a steady income. Do you anticipate needing a new car in the near future? Does the roof need replacing, or is a kitchen remodel on the horizon? It’s far better to plan for these big-ticket items and pay for them with your employment income now. This prevents you from having to finance them and carry new payments into retirement or, even worse, drain your investment accounts to cover a sudden, large expense. A little foresight here goes a long way in protecting your nest egg for its intended purpose: funding your life after work.
Align Your Investments With Your Timeline
As you get closer to retirement, your investment strategy needs to evolve. The approach that helped you build your nest egg is likely not the same one you’ll use to protect it and generate income for the decades to come. The focus now shifts from aggressive growth to wealth preservation. It’s about making sure the money you’ve worked so hard to save will be there for you when you need it. This involves taking a close look at your portfolio and making sure it matches your new timeline.
Reassess Your Risk Tolerance
The investment mix that felt comfortable in your 30s and 40s might feel a bit too risky now. As you approach your retirement date, it’s time to shift from a strategy of maximum growth to a more balanced approach. This change helps protect your portfolio from the ups and downs of the market. You want to reduce your exposure to what’s known as “sequence of returns risk,” which is the danger of a market downturn happening right when you start making withdrawals. A significant drop in your portfolio’s value early in retirement can have a lasting impact, so protecting your principal becomes a top priority.
Rebalance Your Portfolio
Once you’ve reassessed your comfort with risk, the next step is to rebalance your portfolio to reflect it. This simply means adjusting your asset allocation, which is your mix of stocks, bonds, and other investments, to align with your new goals. For many people nearing retirement, this involves gradually moving some money out of higher-risk stocks and into more stable, income-producing bonds. This process isn’t about making drastic changes overnight but about making thoughtful adjustments. Since this can be a complex process, it’s a good idea to get help from a financial advisor to make smart choices and avoid common mistakes.
Review Your Income Sources
Retirement is all about cash flow. Instead of a regular paycheck, you’ll be drawing income from several different places. Now is the time to get a clear picture of what those sources will be and how much you can expect from each. Take inventory of everything: Social Security, pensions, savings in your 401(k)s and IRAs, and any other investments you have. Tallying it all up will help you see if you’re on track to fund the retirement lifestyle you envision. A financial professional can help you analyze these streams and determine if you need to make any final adjustments to meet your retirement goals.
Plan for Healthcare in Retirement
Healthcare is one of the biggest expenses you’ll face in retirement, and it’s also one of the most unpredictable. Planning for it now, while you’re still a few years out, can save you a lot of stress and money down the road. Medicare doesn’t cover everything, and costs can add up quickly. By thinking through your options and building a strategy, you can protect both your health and your nest egg. This isn’t about fearing the unknown; it’s about creating a clear, confident path forward so you can handle whatever comes your way without derailing your retirement dreams. Let’s walk through the key steps to get your healthcare plan in order.
Research Your Health Insurance Options
If you plan to retire before you turn 65, you’ll need to find a health insurance plan to bridge the gap until you’re eligible for Medicare. Start by looking into the Health Insurance Marketplace, where you can compare private plans. Another option might be continuing your employer’s coverage through COBRA, but be prepared for the high cost, as you’ll be paying the full premium yourself. Exploring these options early gives you time to compare costs, coverage levels, and provider networks without feeling rushed. Understanding the landscape now ensures you won’t have a stressful gap in coverage when you hand in your notice.
Understand Medicare and Potential Surcharges
Once you turn 65, you’ll be eligible for Medicare. But it’s not as simple as just signing up. Medicare has different parts (A, B, C, and D) that cover different things, and most people pay monthly premiums for certain parts. It’s also important to know about potential surcharges. If your income in retirement is above a certain threshold, you could face an Income-Related Monthly Adjustment Amount (IRMAA). This is an extra charge added to your Medicare Part B and Part D premiums. You can check the current IRMAA brackets on the Social Security Administration’s website to see if this might apply to you and plan accordingly.
Budget for Out-of-Pocket Medical Costs
Even with a great insurance plan, you’ll still have out-of-pocket costs. These include deductibles, copayments, and expenses that Medicare and many private plans don’t cover, like most dental, vision, and hearing care. A recent study found that a 65-year-old couple retiring this year may need hundreds of thousands of dollars just for healthcare expenses in retirement. Don’t let that number scare you; instead, use it as motivation to create a dedicated healthcare budget. A financial planner can help you estimate these future costs and build them into your overall retirement income plan, so you’re not caught off guard.
Consider Long-Term Care Insurance
Long-term care is a crucial piece of the healthcare puzzle that many people overlook. This isn’t medical care; it’s assistance with daily activities like bathing, dressing, or eating, whether at home or in a facility. Medicare does not typically cover these costs, which can be incredibly expensive and quickly deplete your savings. Long-term care insurance is designed to cover these services. The best time to buy a policy is often in your 50s or early 60s when you’re still healthy and premiums are lower. It’s a way to protect your assets and ensure you can get the care you need without burdening your family.
Schedule Checkups While You Have Coverage
Here’s a simple, actionable step you can take right now: use the health insurance you have. Before you retire, schedule all your routine checkups, dental cleanings, and eye exams. If you’ve been putting off a non-urgent procedure, like a knee replacement or getting a new crown, now might be the time to get it done while you have your employer-sponsored coverage. This proactive approach can help you address potential health issues on your current plan, which may be more comprehensive than what you’ll have in retirement. It’s a smart financial move that helps you enter your next chapter in the best possible health.
Map Out Your Social Security & Tax Strategy
Thinking about Social Security and taxes now can save you major headaches and a lot of money later. These two pieces of your retirement plan are intertwined, and making smart choices in the years leading up to your last day of work will directly impact your cash flow for decades. It’s not just about saving money; it’s about creating a strategic income plan that supports the life you want to live.
Decide When to Claim Social Security
One of the biggest financial decisions you’ll make is when to start taking Social Security. You can claim as early as age 62, but your monthly payment will be permanently reduced. If you wait until your full retirement age, which is 67 for most people nearing retirement, you’ll receive your full benefit. By delaying even longer to age 70, you earn delayed retirement credits that significantly increase your monthly payment. The best way to see your numbers is to review your statement on the my Social Security account website. It shows your personalized benefit estimates at different claiming ages, helping you weigh the pros and cons.
Factor in Spousal Benefits
If you’re married, your Social Security strategy shouldn’t be made in a vacuum. You and your spouse need to coordinate to get the most out of your combined benefits. For example, it often makes sense for the higher-earning spouse to delay claiming until age 70 to lock in the largest possible monthly payment. This not only maximizes their own benefit but also secures a higher survivor benefit for the remaining spouse. There are several strategies to consider, and understanding how to maximize your Social Security benefits as a couple provides a more secure financial foundation for both of you.
Plan for Taxes on Retirement Income
Many people are surprised to learn their retirement income is taxable. Withdrawals from traditional 401(k)s and IRAs are taxed as ordinary income, and even a portion of your Social Security benefits can be taxed depending on your total income. This is where proactive tax planning is essential. In the years before you retire, you can explore strategies like Roth conversions. This involves moving money from a traditional IRA to a Roth IRA and paying taxes on it now, so your future qualified withdrawals are tax-free. This can help you manage your tax bracket in retirement and reduce future Required Minimum Distributions (RMDs). A financial planner can help you build a tax-efficient withdrawal strategy as part of our process.
Review Your Estate Plan
As you get closer to retirement, your focus naturally shifts toward exciting new chapters, like traveling or spending more time with family. While you’re making those plans, it’s also the perfect time to review your estate plan. This isn’t about being morbid; it’s an act of care that ensures your wishes are followed and makes things much easier for your loved ones down the road. An outdated plan can cause confusion and stress for your family when they’re already going through a difficult time.
Life changes, and your estate plan should change with it. Events like a marriage, divorce, the birth of a grandchild, or a change in your financial situation are all excellent reasons to pull out your documents for a check-up. Taking the time now to make sure everything is in order is a fundamental part of a comprehensive financial plan that protects both your assets and your family’s future. It’s one of the most meaningful ways to prepare for the years ahead.
Update Your Beneficiaries
One of the most common and critical estate planning mistakes is having outdated beneficiaries. Beneficiary designations are found on accounts like your 401(k), IRAs, and life insurance policies. These forms dictate who receives the assets in that specific account when you pass away. Here’s the important part: beneficiary designations often override what’s written in your will. If your will leaves everything to your children, but your ex-spouse is still listed on your life insurance policy, that money will go to your ex. That’s why it’s so important to review your beneficiaries regularly and especially after major life events. Make it a habit to confirm your choices align with your current wishes.
Check Your Will and Power of Attorney
Your will is the cornerstone of your estate plan, detailing how you want your property and assets to be distributed. Alongside it, a power of attorney is a document that gives a trusted person the authority to make financial and healthcare decisions for you if you become unable to do so yourself. As you approach retirement, it’s wise to check these documents to confirm they still reflect your wishes. Is the person you named as your executor still the right choice for the job? Is your designated power of attorney still willing and able to take on that responsibility? Ensuring these documents are current provides immense peace of mind, knowing your affairs are in order and in capable hands.
Define Your Ideal Retirement Lifestyle
After years of focusing on the financial nuts and bolts, it’s time for the fun part: dreaming about what your retired life will actually look like. Your retirement plan isn’t just a number on a spreadsheet; it’s the key to a new chapter you get to write yourself. Thinking through the details now helps ensure your finances are aligned with the life you want to live. What will you do with your newfound freedom? Who will you spend it with? Answering these questions is just as important as calculating your expenses.
Decide Where You Want to Live
One of the biggest decisions you’ll make is where you want to spend your retirement. Will you stay in your current home, close to your community in Shepherdstown, or does a new adventure call to you? Think about what truly makes you happy. For some, that means moving closer to grandkids, while for others, it means finding a location with a lower cost of living or warmer weather. If you’re considering a move, try spending a month or two there first. A trial run can help you decide if a place is a good fit before you make a permanent change. Considering all the factors for a retirement location will help you make a choice that supports your financial and personal goals.
Plan for Hobbies and Social Connections
What will your average Tuesday look like in retirement? The initial excitement of not having to work can wear off, leaving you with a lot of unstructured time. To avoid feeling bored or losing your sense of routine, start planning for hobbies, volunteer work, or other activities now. Think about what you’ve always wanted to do but never had time for, whether it’s learning to paint, joining a hiking club, or finally tackling that garden. It’s also a great time to nurture your social life. Your work friends might not be as present, so building connections through shared interests is key. Our Last Paycheck Podcast often covers how to plan for your time, not just your money.
Find Your Post-Career Purpose
For many of us, our careers provide a strong sense of identity and purpose. When that chapter ends, it can feel like something is missing. That’s why it’s helpful to think about what will give your life meaning after you stop working. This doesn’t have to be a grand plan; it could be as simple as volunteering for a cause you care about, mentoring a young professional, or turning a lifelong passion into a small side business. Finding a new “job,” even an unpaid one, can provide the structure and fulfillment you’re used to. This kind of forward-thinking is a core part of creating a retirement you’ll love, a topic we explore in our book, Think Ahead.
Partner With a Planner to Bring It All Together
After going through this checklist, you might be feeling a little overwhelmed. That’s completely normal. Juggling investments, healthcare decisions, tax strategies, and debt payoff is a lot for anyone to handle, especially when you’re also trying to wrap up your career. This is precisely where having a professional in your corner can make all the difference. You don’t have to figure this all out on your own.
A financial planner acts as your personal guide, helping you connect all the dots. They can provide an objective look at your finances to confirm if you’re truly on track for your goals and help you make smart choices to avoid costly mistakes. Instead of relying on generic advice, you get a strategy tailored specifically to your life, your timeline, and your vision for retirement. A planner can help you sort through the complexities of Medicare, evaluate long-term care insurance, and build a tax-efficient income plan so you can keep more of your hard-earned money.
Here at Hoxton, we believe that a clear plan fosters confidence. By using a proven planning approach, we help you organize all these moving parts into a single, cohesive strategy. Partnering with an expert provides more than just financial guidance; it offers peace of mind. It gives you the freedom to stop worrying about the “what ifs” and start looking forward to the next chapter with genuine excitement.
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Frequently Asked Questions
I feel overwhelmed by this list. What’s the very first thing I should do? That’s a completely fair feeling. This is a big transition, and the checklist is comprehensive for a reason. The best place to start is with what you know right now: your current spending. Before you can plan for the future, you need a clear picture of the present. Spend a month or two simply tracking where your money goes. This isn’t about judgment; it’s about gathering data. This single step will make creating a realistic retirement budget much easier and give you a solid foundation for all the other planning to come.
Is it always better to pay off my mortgage before I retire? Not necessarily, and this is a great question because the answer depends on your personal comfort level and your specific numbers. For many people, the peace of mind that comes from eliminating their largest monthly bill is priceless. It creates a lot of breathing room in a fixed-income budget. However, if you have a very low interest rate on your mortgage, it could make more financial sense to use your extra cash for investments that have the potential to earn a higher return than your mortgage rate. It’s a strategic choice between emotional security and potential financial growth.
How do I know if a Roth conversion is the right move for me? A Roth conversion can be a powerful tool, but it isn’t for everyone. The main question to ask yourself is this: do you expect your income (and therefore your tax rate) to be the same or higher in retirement than it is now? If you think it will be, paying the income taxes on that conversion now, while you’re in a potentially lower bracket, could save you money in the long run. This gives you a source of tax-free income later on. Because this decision impacts your taxes today and for years to come, it’s a great topic to discuss with a financial professional who can analyze your specific situation.
My spouse and I are both approaching retirement. Should we plan our Social Security separately? Please don’t! It’s so important to approach your Social Security strategy as a team. Coordinating when each of you claims your benefits can have a huge impact on your total household income over your lifetimes. For instance, having the higher earner delay their claim can lock in a larger monthly payment for them and also secure a higher survivor benefit for the other spouse. Looking at your options together ensures you’re making the most of the benefits you’ve both earned.
After doing all this, how can I be sure my plan is actually going to work? This is the ultimate question, isn’t it? You can do all the planning, but confidence comes from knowing your plan can withstand a reality check. This is where a professional can be so valuable. A financial planner can act as a second set of eyes, “stress testing” your strategy against different scenarios like market downturns or unexpected expenses. They can help you confirm that all the pieces, from your budget to your withdrawal strategy, work together to support your goals. This objective review is what turns a good plan into a great one and gives you the confidence to truly enjoy your retirement.