5 Years From Retirement? Start Planning These Financial Decisions Now
If retirement is about five years away, it may still feel like you have plenty of time. But financially, these next few years can be some of the most important in your retirement journey.
Until now, much of your focus may have been on accumulation: contributing to retirement accounts, investing, paying down debt, growing your business, or simply trying to build enough wealth to eventually stop working.
As retirement gets closer, the questions begin to change.
Instead of only asking how much you've saved, you need to start thinking about how those savings will actually support your life when a regular paycheck is no longer arriving. Where will your income come from? When should you claim Social Security? How will withdrawals affect your taxes? Is your investment strategy prepared for the transition from accumulating wealth to using it?
Five years gives you something valuable: time to answer those questions before many of the decisions become immediate.
In Simple Terms: What Should You Do 5 Years Before Retirement?
Five years before retirement, you should begin turning your collection of accounts, benefits, and financial goals into an actual retirement strategy.
That means understanding what retirement may cost, determining where your income could come from, evaluating Social Security, reviewing your investments, thinking ahead about taxes and healthcare, and making sure your estate plan still reflects your wishes.
You don't need to know exactly what the next 30 years will look like. You should, however, begin understanding how the major pieces of your financial life will work together once you retire.
1. Start With the Retirement You Actually Want
It's easy to begin retirement planning with a savings target. Maybe you've always thought $1 million was the goal, or perhaps you have another number in mind.
But a portfolio balance doesn't tell you how much your retirement will cost.
A couple who plans to stay in their paid-off home, travel occasionally, and maintain a relatively modest lifestyle may have very different financial needs from a couple who wants to travel internationally several times a year, purchase a second home, help grandchildren with college, or retire while still carrying significant debt.
Before determining whether you're financially prepared, spend some time defining what you're preparing for.
Think about where you want to live, how frequently you want to travel, whether you plan to continue working in some capacity, how much you want to give or leave to family, and what you want your day-to-day life to look like.
These aren't simply lifestyle questions. They give your financial plan something meaningful to plan around.
2. Understand What Retirement May Actually Cost
Once you have a clearer picture of the retirement you want, you can begin estimating what that lifestyle may require financially.
Your current spending is a useful starting point, but retirement expenses rarely look exactly like working-life expenses. Some costs may decrease. You may no longer commute, contribute as much to retirement accounts, or carry a mortgage. Other expenses, such as travel, hobbies, healthcare, or home maintenance, may increase.
Your retirement budget should consider regular expenses such as housing, food, transportation, insurance, healthcare and utilities, but it should also account for expenses that don't arrive every month.
A new vehicle, major home repair, family wedding, extended vacation, or financial support for children and grandchildren can significantly affect spending in a particular year.
The goal isn't to predict every dollar you'll spend for the rest of your life. It's to create a realistic picture of the lifestyle your wealth will need to support.
That gives you a much better foundation for determining whether you're financially ready to retire.
3. Decide Where Your Retirement Paycheck Will Come From
For most of your working life, income has been fairly straightforward. You work, and a paycheck arrives.
Retirement changes that.
Instead of receiving income from one primary source, your retirement paycheck may need to be assembled from several places, including Social Security, retirement accounts, brokerage accounts, pensions, cash savings, rental income, business income, or other investments.
The challenge isn't simply deciding how much to withdraw. You also need to consider where the money should come from and when.
For example, withdrawing money from a traditional retirement account can have different tax implications than using cash or taking a qualified distribution from a Roth account. The accounts you use during the first few years of retirement can also affect how much remains invested for later years.
This is why retirement income planning becomes increasingly important before you actually retire. Instead of waiting until the first month without a paycheck to decide where your income will come from, you can begin building that strategy ahead of time.
4. Look at Taxes Before the Paycheck Stops
Taxes are easy to treat as something you deal with once a year when your return is prepared. Retirement can make that approach increasingly limiting.
Your income may eventually come from a combination of traditional retirement accounts, Roth accounts, Social Security, investment accounts, pensions, business income, and other sources. Those sources aren't necessarily taxed in the same way.
Traditional retirement-account distributions, for example, are generally included in taxable income unless an exception applies. Certain retirement accounts may also eventually be subject to required minimum distribution rules.
The years surrounding retirement may therefore create opportunities to think more proactively about taxes. Depending on your individual circumstances, that could include evaluating Roth conversions, retirement-account withdrawals, capital gains, charitable giving, or the timing of different income sources.
The important distinction is that tax preparation tells you what happened, while tax planning considers what may happen before you make the decision.
That's also why communication between your financial advisor and tax professional can become increasingly valuable as retirement approaches.
5. Make Social Security Part of the Larger Plan
Social Security is an important source of retirement income for many households, but choosing when to claim shouldn't happen independently of everything else.
You can generally begin Social Security retirement benefits as early as age 62. Claiming before full retirement age generally results in a lower monthly benefit, while delaying beyond full retirement age can increase the monthly benefit until age 70.
The decision becomes more meaningful when you look at it alongside your retirement date, spouse's benefits, other sources of income, taxes, investments, and longevity considerations.
For example, if you retire before claiming Social Security, you'll need another source of income during those years. That may mean withdrawing more from your portfolio, using cash reserves, or relying on another household income source.
Rather than simply asking, “At what age should I take Social Security?”, consider asking how each claiming option affects the rest of your retirement strategy.
6. Make Sure Your Investments Match What Comes Next
Your investment strategy during retirement may need to accomplish something different from the strategy you followed while working.
During the accumulation years, you may have been regularly contributing money to your portfolio and giving those investments years or decades to grow. As retirement approaches, you may soon begin taking money out instead.
That makes questions around risk, diversification, liquidity, income needs, time horizon, and market volatility increasingly important.
It does not mean everyone approaching retirement should suddenly move their portfolio into cash or eliminate investment risk. Retirement itself may last 20 or 30 years, and long-term growth can still matter.
Instead, the goal is to understand whether your portfolio is positioned around the financial plan you are actually entering.
A useful review may consider:
How much you'll need from investments each year
How much short-term liquidity you have
How comfortable you are with market volatility
Whether your investments remain appropriately diversified
Which accounts may be used for income first
How the portfolio fits with Social Security and other income
Your investment strategy should support your retirement plan, rather than exist separately from it.
7. Have a Plan for Healthcare
Healthcare can become particularly important if you're considering retiring before age 65.
Leaving an employer before becoming eligible for Medicare may create a period when you need another source of health insurance. That cost needs to be included when determining whether an earlier retirement is financially realistic.
If you're approaching Medicare eligibility, you'll also want to understand enrollment timing, coverage options, and how Medicare fits alongside any existing employer or spouse's coverage.
Healthcare shouldn't be a number added to the plan at the last minute. It is part of the cost of retirement and deserves to be considered alongside housing, travel, taxes, and other major expenses.
8. Review Your Estate Plan and Beneficiaries
The years leading up to retirement are also a good time to make sure your estate plan still reflects your current life.
Families change. Assets change. Businesses grow or are sold. Children become adults. Grandchildren arrive. Priorities shift.
Your beneficiary designations, will, trusts, powers of attorney, healthcare directives, account ownership, charitable intentions, and legacy goals should reflect those changes.
This is also another area where financial coordination matters.
Your attorney may create the legal documents, while your financial advisor can help identify how financial accounts and beneficiary designations fit into the broader financial picture. Tax professionals may also need to be involved when tax considerations arise.
The goal isn't for one professional to do every job. It's to help ensure the different pieces are working toward the same goals.
9. See What Happens When Retirement Doesn't Go Exactly as Planned
A retirement plan shouldn't only work under perfect conditions.
Before you retire, it can be helpful to evaluate how your plan might respond if circumstances change. What happens if markets decline shortly after you stop working? What if inflation increases your expenses? What if healthcare costs are higher than anticipated? What if you want to spend more during the first several years of retirement?
You may also want to understand the impact of decisions that are within your control.
Would working one additional year materially change the plan? What happens if you retire a year earlier? Could spending more on travel during the first decade still fit comfortably within your long-term goals?
The purpose isn't to predict exactly what will happen. It's to understand how flexible your plan may be when reality doesn't follow the original assumptions.
That's considerably more useful than having a retirement plan that works beautifully on paper only when everything goes exactly right.
What Should You Know Before You Retire?
Five years before retirement, you don't need every future decision mapped out.
But you should be moving toward clarity.
You should have a reasonable understanding of what retirement may cost, where your income will come from, when you may claim Social Security, how taxes could affect your withdrawals, how your investments fit the transition, and how healthcare will be covered.
You should also know whether your estate plan still reflects your wishes and whether the professionals helping with different parts of your financial life are communicating when appropriate.
Most importantly, you should understand why you're making the decisions you're making.
That's the difference between having retirement accounts and having a retirement plan.
The Greyrock Perspective
The five years before retirement aren't simply a countdown to your last day of work. They're an opportunity to begin connecting the financial pieces you've spent decades building.
At Greyrock Private Wealth, we look beyond the size of a portfolio to understand how investments, retirement income, taxes, Social Security, estate considerations, and your personal goals fit together.
You don't need to predict every detail of retirement to prepare well for it. You need a thoughtful plan that helps you understand your options, make informed decisions, and adjust as your life changes.
Retirement isn't one financial decision. It's a series of interconnected decisions, and the earlier you begin looking at them together, the better prepared you can be for what comes next.
Frequently Asked Questions
What should I do 5 years before retirement?
Five years before retirement is a good time to begin developing a comprehensive plan for your expected spending, retirement income, Social Security, taxes, investments, healthcare, and estate considerations. You should also identify financial decisions that may benefit from being addressed while you're still working.
Is 5 years before retirement too early to meet with a financial advisor?
No. Starting several years before retirement can provide more time to evaluate decisions involving retirement income, investments, Social Security, taxes, healthcare, and other areas of your financial life. It also gives you time to make adjustments before leaving the workforce.
How much money should I have 5 years before retirement?
There isn't one savings amount that's appropriate for everyone. The amount you may need depends on factors such as your expected spending, retirement age, Social Security benefits, other income, taxes, investments, debt, healthcare expenses, longevity, and long-term goals.
Should I change my investments 5 years before retirement?
Your investment strategy should be reviewed as retirement approaches, but approaching retirement doesn't automatically mean becoming significantly more conservative. Your portfolio should consider your risk tolerance, time horizon, income needs, other assets, liquidity needs, and overall financial plan.
What are the biggest things to consider before retirement?
Some of the most important areas include expected spending, retirement income, Social Security, taxes, investment strategy, healthcare, estate planning, and how those decisions interact. Looking at these areas together can provide a clearer picture than evaluating any one of them by itself.
Five Years Goes Faster Than You Think
If retirement is about five years away, you don't need to have every answer today.
But this is a valuable time to start asking the questions that will shape what happens next.
Can the wealth you've built support the retirement you want? Where will your income come from once your paycheck stops? How could taxes affect that income? When does Social Security make sense? Are your investments positioned for the transition?
Greyrock Private Wealth helps individuals and families look at those decisions together so retirement planning becomes about more than reaching a number.
If retirement is starting to feel real, your plan should too.
Greyrock Private Wealth | Wealth management built around your life, not Wall Street.
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