Retirement may have always felt like something far off in the future. But when you're five years away, the decisions you make today can have a significant impact on what retirement looks like tomorrow.
You may have spent decades contributing to your 401(k), building your investments, and saving for the future. Now it's time to think about how all those pieces will work together when your regular paycheck stops.
If you're planning to retire within the next five years, here are seven important areas to review before making that transition.
1. Know Where Your Retirement Income Will Come From
One of the biggest adjustments in retirement is going from earning a paycheck to creating one.
Your income may come from several sources, including:
Social Security benefits
Pensions
401(k)s and IRAs
Investment accounts
Part-time employment or other income
The important question isn't just how much you've saved. It's how you'll turn those savings into income that can support your lifestyle.
Start by estimating your monthly retirement expenses and comparing them with your expected income sources. This can help identify potential gaps before you retire.
2. Review Your Social Security Strategy
Deciding when to claim Social Security is an important retirement decision.
You can generally begin collecting retirement benefits as early as age 62, but claiming before your full retirement age permanently reduces your monthly benefit. Waiting beyond full retirement age can increase your benefit up to age 70.
The right decision depends on several factors, including your retirement goals, health, other income sources, and whether you're married.
For couples, coordinating Social Security benefits can be particularly important because claiming decisions may also affect future survivor benefits.
Rather than automatically claiming as soon as you're eligible, consider how Social Security fits into your overall retirement income plan.
3. Understand How Taxes May Change in Retirement
Many people assume they'll automatically pay less in taxes once they stop working. That's not always the case.
Withdrawals from traditional retirement accounts, Social Security benefits, pensions, and investment income can all affect your tax situation.
The five years leading up to retirement may provide opportunities to evaluate:
Whether Roth conversions make sense
How withdrawals from different accounts could affect your taxes
Potential capital gains from investment sales
Future required minimum distributions (RMDs)
How retirement income could affect Medicare premiums
A tax-efficient withdrawal strategy can be just as important as deciding how much to withdraw.
4. Take Another Look at Your Investment Risk
The investment strategy that helped you build your retirement savings may not be the same strategy you need when retirement approaches.
During your working years, you may have had more time to recover from market downturns.
As retirement gets closer, market volatility can become more challenging, particularly if you're withdrawing money from your investments to cover expenses.
This doesn't necessarily mean moving everything into conservative investments. Your retirement savings may still need to support you for 20 or 30 years.
Instead, review whether your investment allocation, cash reserves, and withdrawal strategy align with your upcoming income needs and comfort with risk.
5. Plan for Healthcare Before Medicare
If you're considering retiring before age 65, healthcare deserves special attention.
Leaving your employer may also mean leaving your employer-sponsored health insurance.
Consider what coverage will look like between your retirement date and Medicare eligibility.
Even once Medicare begins, there may be premiums, deductibles, prescription costs, and supplemental coverage to evaluate.
Healthcare expenses should be part of your retirement budget, not an afterthought.
6. Revisit Your Debt, Expenses, and Retirement Lifestyle
What do you actually want retirement to look like?
Maybe you want to travel more, spend time with family, volunteer, or simply enjoy having greater flexibility.
Your goals should help determine your retirement budget.
Review major expenses such as your mortgage, car payments, home maintenance, and any financial support you provide to family members.
You don't necessarily need to be completely debt-free before retiring, but understanding how ongoing payments affect your income needs is important.
Consider creating a retirement budget that separates essential expenses from discretionary spending.
This gives you a clearer picture of what you'll need and where you may have flexibility.
7. Update Your Estate Plan and Beneficiaries
Retirement planning isn't only about the years ahead. It's also about making sure the people and causes you care about are protected.
Review your:
Wills and trusts
Financial and healthcare powers of attorney
Beneficiary designations on retirement accounts and insurance policies
Legacy and charitable giving goals
Life changes, such as marriage, divorce, the loss of a loved one, or the birth of grandchildren, may mean your existing documents no longer reflect your wishes.
Remember that beneficiary designations can determine how certain assets pass, regardless of what your will says.
The Bottom Line: Five Years Can Make a Difference
Preparing for retirement involves more than choosing a retirement date or reaching a savings goal.
It's about understanding how your income, investments, taxes, healthcare, and personal goals fit together.
The earlier you begin reviewing these areas, the more time you may have to make adjustments before retirement.
At Bridger Financial Group, we help individuals and families evaluate their financial picture and prepare for the transition into retirement.
If you're thinking about retiring in the next five years, now may be a good time to review your financial plan and make sure it reflects the retirement you're working toward.
Ready to take a closer look at your retirement plan? Schedule a retirement planning conversation with our team.