Americans have grown accustomed to financial planning with a fixed date in mind.
Whether you’re buying a home, saving for college, buying a new vehicle or using target-date funds for long-term savings, knowing when you’ll need the money is a big part of your financial plan.
One key planning phase begins five years before retirement, when career professionals focus on what they need to do in the next half-decade to retire comfortably.
“In my practice, I focus on a five-year goal for retirement,” said KJ Dykema, financial consultant and founder of Family Retirement, a Seattle-based investment advisory firm, in an email. “Doing so helps people shift into a mindset of planning and closure on their own terms. When you take control of your exit strategy, you’re more resilient than someone forced into an unexpected departure.”
Focus on these planning points as you take stock of your retirement plan at the five-year mark.
— Work with a trusted financial advisor.
— Adjust your retirement portfolio.
— Know your income needs.
— Evaluate your expenses.
— Determine when you’ll collect Social Security benefits.
— Plan your health care options.
— Protect your estate.
Work With a Trusted Financial Advisor
If you haven’t already done so, bring a seasoned financial advisor on board to steer your five-year journey to retirement.
“A financial advisor can help maximize your savings plan before retirement and help prevent mistakes up to and through retirement,” said Nina O’Neal, a financial planner at AIM Advisors in Raleigh, North Carolina, in an email.
An experienced money manager can also walk you through that critical yet challenging five-year timeline. “Your advisor can thoroughly and objectively evaluate your current situation and review your investments, retirement plans, pensions, debt, risk, spending and bucket list items for retirement,” O’Neal added.
Expect discussions on other key issues, including tax strategies and converting your savings into income.
[RelatedLAsk a Financial Pro: Should I Add Foreign Investments to My Retirement Portfolio?]
Adjust Your Retirement Portfolio
When you’re five years from hanging up that corporate lanyard, plan how you’ll generate income from your retirement portfolio.
“Your advisor can help you investigate income-producing assets such as dividend stocks, fixed income or other more conservative investments like money market accounts,” said Hope Albu, senior financial planner at UMB Bank in Denver, in an email. “Having a passive way to generate income as part of your portfolio can help supplement any retirement savings you’ve built up during your working years.”
Typical recommendations emphasize having a diversified portfolio so your risk is diluted across asset types. “Diversification allows you to mix aggressive growth assets with more conservative income-producing investments,” Albu said. “In retirement, being too conservative could mean a loss to your rate of return.”
Know Your Retirement Income
Regular income is the lifeblood of a worry-free retirement, and that’s where all those years of workplace savings accounts pay off.
“Traditional IRAs, 401(k)s, 403(b)s and self-employed plans are structured for you to withdraw from them over your lifetime,” Albu said. “You might be nervous spending down these accounts, but a financial advisor can help you distribute these funds appropriately throughout your retirement so you can live comfortably.”
Also note that at certain ages, you’ll have to take required minimum distributions from your IRA and 401(k) accounts. Your advisor can help you set a withdrawal schedule.
[Read: How to Turn $1 Million Into Passive Retirement Income]
Evaluate Your Expenses
Take a long-term look at your financial obligations, including ongoing and long-term expenses.
The good news is that ongoing expenses — including your basic monthly costs — are straightforward. “This figure helps establish the minimum income you’ll need in retirement. One potential curveball is health care, especially if you retire before age 65,” Dykema said. “Plan for that added cost or explore tourism health care as a potential alternative.”
Next, calculate lifestyle expenses such as travel, shopping and home improvements. “This gives you a clearer picture of how much of your budget is devoted to enjoyment versus necessity,” Dykema noted. “Combined, these will help you determine how much income you’ll need during retirement.”
Long-term expenses include larger, less frequent costs. “These costs, like paying off a mortgage or replacing a roof, are important,” Dykema added. “If you can plan and save for these in advance, your income needs won’t spike unexpectedly and cause strain on your portfolio.”
Determine When You’ll Collect Social Security Benefits
Five years before retirement, you should have a good grasp of when you will begin taking Social Security benefits. Don’t linger on that decision; the payout timeline can be complicated.
“Full retirement age is typically 67, but you can delay until age 70 for a larger benefit,” Dykema said. “However, delaying might require you to draw from your IRA earlier, which could have tax consequences later.”
One Social Security delay strategy is to build a dedicated savings account during your final working years. “If structured properly with a (certified public accountant) and financial planner, you may be able to draw from this account with little to no tax impact,” Dykema added.
[READ: What Is the Full Retirement Age for Social Security?]
Plan Your Health Care Options
People nearing retirement are still in the workforce and likely have access to an employer-sponsored health insurance plan. “When they retire, that plan goes away, and they’re left paying for these costs on their own,” Albu said. “Some retirees are not old enough for Medicare and must pay for insurance completely out of pocket.”
Set aside savings to cover medical expenses, including:
— Long-term care costs. These costs can cover assisted living or nursing home care.
— Dental costs. Medicare won’t pay for teeth cleanings or extensive dental needs.
— Vision costs. Medicare doesn’t pay for eye exams, glasses or contact lenses.
A health savings account can help pay for medical care and functions like a traditional retirement account. “The account holder can invest the unused money they contribute,” she said. “Major HSA providers now offer multiple investment options, including money market funds or self-directed accounts for mutual funds.”
Protect Your Estate
Well before retirement, it’s a good idea to set up an estate plan and use beneficiaries or transfer-on-death designations to avoid unnecessary probate. “As you update these documents, consider whether a last-minute life insurance policy makes sense,” Dykema said. “While not common, this can benefit those with real estate intended to pass to children. It could provide them with a tax-free way to cover estate taxes.”
Also, don’t forget legal documents, including a durable power of attorney and a directive to physicians, also known as an advance directive. “These are essential for ensuring your wishes are honored during end-of-life care or incapacity,” Dykema added. “Starting this process five years before and having an annual follow-up is imperative to ensure the greatest retirement outcome.”
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How to Retire in 5 Years originally appeared on usnews.com
Update 06/25/25: This story was published at an earlier date and has been updated with new information.
