Get the Last Five Years Before Retirement Right

We spend decades working our way toward retirement. The accumulation phase, when we’re gathering wealth before retirement, is generally considered to be decades long. But every stretch is important, including the five years right before you retire.

The truth is the last five years before retirement requires a different strategy and adjustments to match. Those last five years are, to borrow a cliché, the home stretch and you certainly want to turn into that home stretch with confidence.

When you’re in your 20s and 30s, retirement is something of an abstract concept. You know it’s out there, but you don’t really spend a lot of time thinking about it. But when you reach your late 50s or early 60s, you realized it’s real and it’s coming fast.¹

In those later years, you can ask yourself a series of important questions: Have I socked enough money away? Have I worked with a financial services professional to discuss investments and allocations? Am I prepared to pay for long-term care costs? Should I consider a trust? Should I prioritize paying off my mortgage? Is my 401(k) going to provide me with enough retirement income?

The answers to those questions will help you address challenges in your last years before retirement. First, you’ll want to get a complete understanding of where you are financially at that time. You can take some time to assess how your money is allocated in terms of retirement accounts and investments, and your expected Social Security income and strategy.

And then there’s the most important question of all: When you combine all of these potential income sources, will they create a pot big enough to allow you to maintain your current or preferred lifestyle?

If you aren’t sure you’re as ready as you should be for retirement, it can make a lot of sense to work with a financial services professional. Chances are there’s an experienced pro in your community who can answer your questions, analyze your current strategy, offer suggestions and perhaps most importantly, calm your nerves.

And don’t forget that if you’re still five years away from retirement, there’s likely still time to adjust your allocations, how much you’re saving, and your tax strategies.

Another important question you should ask yourself is what you want your retirement to look like. Does your imagination wander to relaxing afternoons reading a book on the beach, or are guided tours through the great European sites and museums more your cup of tea? Or, maybe your preferred retirement isn’t so much grand adventures as it is time with your children and grandchildren without the worries and burdens of work.

You can start to make a plan for where you want to be, and where you want to go when you have a clearer picture of that in your head.

Finally, the last question you’ll want to ask yourself is if the timing is right. Everyone has a different vision for when they’ll retire. Some common ages are:

• Age 59 ½, which is when you can begin avoiding penalties on withdrawals from retirement plans
• Age 62, which is when you first become eligible for Social Security
• And age 65, which is when you become eligible for Medicare

If you retire before you turn 65, you’ll want to have a plan for how you’ll get health insurance. This is no small consideration. No matter the option you choose, it’s imperative to have adequate insurance when you retire.

You spend so much of your working life working toward retirement. Make sure you nail the last five years so you can head into retirement on a high note.

¹https://www.forbes.com/sites/davidrae/2020/07/23/mastering-the-last-five-years-before-retirement/