5 Years Before Retirement: What to Do and in What Order

Retirement planning can become overwhelming because there are so many decisions competing for attention at once. Social Security, Medicare, taxes, Roth conversions, pensions, investment risk, estate documents, and withdrawal strategies all matter, but they do not all need to be solved on the same day. The bigger mistake is often not failing to plan, but doing the right thing in the wrong order.

The five years before retirement can serve as a runway. That period gives you time to understand what retirement will actually cost, organize your accounts, model income, correct tax imbalances, and make decisions before deadlines force your hand. A retirement plan becomes much stronger when each decision is made with the next one already in view.

1. Start With What Retirement Will Actually Cost

The first step is not choosing an investment or deciding when to claim Social Security. It is understanding how much your life costs. The best starting point is usually your actual spending over the past 12 to 24 months rather than an arbitrary percentage of your salary.

Separate expenses into essentials and lifestyle spending. Housing, utilities, food, insurance, transportation, and healthcare form the foundation, while travel, entertainment, hobbies, gifts, and discretionary purchases shape the retirement you actually want to live. That distinction matters because discretionary spending can usually be adjusted more easily during weak markets or unexpected financial stress.

Do not forget irregular expenses simply because they do not appear every month. Home repairs, vehicle replacements, property taxes, insurance premiums, travel, and large medical costs can make a retirement budget look artificially low if they are excluded. A realistic spending estimate should reflect the full year rather than an average month that happens to be quiet.

Once you know what retirement costs, you can stop relying on a vague savings target. The question changes from “Do I have enough money?” to “Can my available income and investments reliably support this lifestyle?”

2. Identify Every Source of Retirement Income

The next step is determining how much of that spending will be covered without relying on the investment portfolio. Social Security, pensions, annuities, rental income, part-time work, and other dependable income sources should all be mapped out. The difference between expected spending and reliable income becomes the amount your investments need to produce.

This calculation should be done after considering taxes. A $4,000 monthly pension does not necessarily provide $4,000 of spendable cash, and traditional IRA withdrawals are generally taxable as ordinary income. Retirement planning based only on gross income can significantly overstate what is actually available for living expenses.

Timing also matters. A pension may begin at retirement while Social Security is delayed several years. That can leave an early-retirement gap that has to be funded from cash, brokerage assets, or retirement accounts. Understanding that gap before retiring prevents the first few years from becoming an improvised withdrawal strategy.

This income map also helps identify whether delaying a benefit is financially practical. A larger future Social Security payment may be attractive, but it requires another source of cash in the meantime. The best claiming decision is the one that fits the household’s entire income plan rather than simply maximizing one benefit in isolation.

3. Map Your Accounts by Tax Type

Once spending and income are understood, the next step is knowing where your money actually lives. Retirement savings generally fall into three broad tax categories: pretax accounts such as traditional 401(k)s and IRAs, Roth accounts, and taxable brokerage or cash accounts. Each behaves differently when money is withdrawn.

Pretax retirement withdrawals generally create ordinary taxable income. Qualified Roth withdrawals can generally come out tax-free, while taxable brokerage accounts may create capital gains depending on cost basis and what is sold. Having money spread across all three categories can create much more flexibility than having nearly everything concentrated in one type of account.

This is why account diversification matters before retirement. Someone with $2 million entirely inside a traditional 401(k) may have a large portfolio but relatively little control over future taxable income once required distributions begin. Someone with a mix of traditional, Roth, and taxable assets can choose where spending comes from based on that year’s tax conditions.

The five-year runway is an opportunity to identify those imbalances. You may still have time to adjust current 401(k) contributions, build Roth assets, increase taxable savings, or plan future conversions. Those moves become harder once the paycheck stops and the existing account structure is already set.

4. Put Every Important Retirement Date on One Timeline

Retirement involves several dates that can affect one another, which is why they should be viewed together. Your actual retirement date, employer health coverage end date, Medicare eligibility, Social Security claiming date, pension start date, and required minimum distribution age should all appear on one timeline.

The healthcare transition deserves particular attention. Someone retiring before 65 may need several years of ACA marketplace coverage, COBRA, retiree insurance, or another health plan before Medicare begins. That cost can materially affect whether early retirement is affordable.

Social Security creates another decision point because retirement and claiming do not have to happen simultaneously. Someone can retire at 60, live from investments for several years, and claim Social Security later. That approach may increase future benefits but also increases portfolio withdrawals during the bridge period.

Required minimum distributions arrive later, generally beginning at age 73 or 75 depending on birth year under current law. Those future mandatory withdrawals should be considered long before they begin because they can affect tax brackets, Social Security taxation, and Medicare premiums. The timeline makes those interactions visible before they become problems.

5. Decide How You Will Actually Withdraw Money

Accumulating investments is very different from spending them. Before retirement, you should have a written answer for where the first year of retirement income will come from and what changes if the market falls. A portfolio without a withdrawal strategy is not yet a retirement-income plan.

One approach might use cash and taxable assets during the first several years while allowing retirement accounts to remain invested. Another household may draw from a traditional IRA while intentionally filling lower tax brackets. The right order depends on taxes, Social Security timing, Roth conversion opportunities, and future required distributions.

A written plan also helps during market declines. If stocks fall 25% shortly after retirement, you should already know whether spending will come from cash, bonds, or other assets rather than being forced to sell depressed investments. That preparation helps manage sequence-of-returns risk during the years when withdrawals can have the greatest long-term impact.

The withdrawal strategy should also specify how taxes will be paid. Quarterly estimated payments, withholding from distributions, or cash reserves can all work, but the decision should be intentional. Retirement becomes much easier when every withdrawal is not simultaneously a tax surprise.

6. Use the Final Working Years to Increase Tax Flexibility

The last several years of employment can be extremely valuable because you may still have high income and access to employer retirement plans. Increasing contributions during those years can strengthen the retirement plan, especially if children have left home, a mortgage has been reduced, or other expenses have fallen.

The question is whether those additional contributions should be pretax or Roth. Someone in a very high tax bracket today may still benefit from pretax contributions, while someone expecting much higher taxable income later may value Roth contributions more. The answer depends on current and projected marginal tax rates rather than a universal rule.

This is also the time to evaluate whether the household has enough assets outside retirement accounts. A large brokerage or cash balance can be extremely useful during early retirement because it can fund spending while creating room for strategic Roth conversions. Tax diversification often matters more than maximizing a single account type.

The final working years are therefore not simply about saving as much as possible. They are about intentionally placing new dollars where they will provide the greatest flexibility once regular paychecks disappear.

7. Use Lower-Income Years for Roth Conversions Carefully

The years immediately after retirement can create one of the best tax-planning opportunities of your life. Salary may disappear while Social Security and required distributions have not yet begun, leaving taxable income unusually low. That can create room to convert traditional retirement assets to Roth at more favorable tax rates.

The key is moderation. A large conversion can push income into a much higher tax bracket, increase Medicare IRMAA premiums later, or interfere with ACA subsidies before age 65. The goal is not to convert the largest possible amount; it is to convert the amount that makes sense within the broader tax plan.

Market declines can occasionally make conversions more attractive because depressed investments can be moved to Roth at a lower taxable value. If those assets later recover inside the Roth, the rebound can occur in the tax-free account. That opportunity can be useful, but market conditions should never replace tax planning.

Roth conversions work best when they are planned over multiple years. A series of measured conversions can gradually reduce future RMDs while avoiding the tax spike that may come from trying to solve everything at once.

8. Do Not Automatically Claim Social Security When You Retire

Retirement and Social Security are separate decisions. Many people instinctively claim benefits as soon as the paycheck stops because they assume retirement income must immediately replace employment income. That can be appropriate, but it should not happen automatically.

Delaying Social Security can increase the monthly benefit up to age 70, while claiming before full retirement age permanently reduces the starting benefit. For married couples, the higher earner’s decision can also affect the survivor benefit available after one spouse dies.

The trade-off is that delaying requires another source of income. Someone may need to withdraw more from the portfolio during the early years, which can increase sequence risk or require selling investments during a downturn. The best strategy therefore balances the value of a higher guaranteed benefit against the cost of funding the delay.

Social Security should be coordinated with taxes, health, longevity expectations, and portfolio withdrawals. It is one part of the retirement-income system, not an independent decision made in isolation.

9. Evaluate Pension Choices Before the Deadline Arrives

Some retirees also face a choice between a lifetime pension and a lump-sum distribution. That decision can have major long-term consequences and deserves more analysis than simply comparing the headline dollar amounts.

A monthly pension can provide guaranteed income and reduce dependence on investment markets. A lump sum offers more control, flexibility, and potential inheritance value but transfers investment and longevity risk to the retiree. Neither structure is automatically superior.

Survivor benefits matter too. A pension election that maximizes the monthly payment for one spouse may leave the surviving spouse with little or no income after the first spouse dies. Couples should understand exactly what happens under each survivor option before selecting the highest current payment.

This is another decision that should be considered several years before retirement when possible. Understanding the trade-offs early gives the household time to build other assets or insurance around whichever pension option ultimately makes the most sense.

10. Protect the Household Before Retirement Begins

A strong retirement plan is incomplete if it only works while both spouses are healthy and alive. Beneficiary designations, wills, powers of attorney, healthcare directives, trusts where appropriate, and insurance coverage should all be reviewed before retirement. These are not merely estate-planning documents; they are part of financial continuity.

Beneficiary designations deserve particular attention because they can override instructions in a will for retirement accounts and certain other assets. Old employer plans may still name beneficiaries selected decades earlier, and changes in marriage, divorce, births, or deaths may make those designations outdated.

The household should also understand what happens financially after the first spouse dies. Which Social Security benefit remains? What happens to pension income? Will taxes rise because the survivor files as a single taxpayer? Is the surviving spouse comfortable managing the investments?

Planning for that scenario before retirement creates resilience. The goal is not simply to leave assets behind but to make sure the surviving household can function without financial confusion during an already difficult period.

11. Do Not Move Everything to Cash Just Because Retirement Is Close

Approaching retirement can make market volatility feel much more threatening, which sometimes leads investors to move most of the portfolio into cash. That can reduce short-term volatility but create another risk: inflation and insufficient long-term growth.

Retirement may last 20, 30, or even 40 years. A portfolio still needs enough growth potential to support future spending and preserve purchasing power. Holding too much cash for too long can make the plan less sustainable even if the account balance initially feels safer.

That does not mean a retiree should remain aggressively invested without considering sequence risk. The better approach is often to hold enough cash or lower-volatility assets to cover near-term spending while allowing longer-term assets to remain invested for growth.

The allocation should match the withdrawal plan. If several years of spending can be covered without selling stocks during a severe decline, the retiree may be able to tolerate volatility more comfortably without abandoning long-term growth.

12. Do Not Let a Round Number Decide Your Retirement Date

Many people anchor retirement decisions to a portfolio number such as $1 million, $2 million, or $3 million. Those numbers can be psychologically satisfying, but they do not tell you whether retirement is actually affordable. Two households with identical assets can have completely different spending needs, pensions, taxes, and Social Security benefits.

A couple spending $70,000 annually with substantial guaranteed income may need far less invested than a household spending $180,000 with little income outside the portfolio. The balance itself provides no context. Retirement readiness is determined by the relationship between resources and spending.

This is why spending should be calculated before choosing the retirement date. A realistic cash-flow plan can sometimes show that someone is ready earlier than expected, while another person may discover that a larger balance still does not comfortably support the desired lifestyle.

The goal is not reaching a prestigious number. It is creating a financial system that supports the life you want without taking unnecessary risk.

13. Build Flexibility Into the Plan Instead of Predicting Everything Perfectly

No retirement plan will unfold exactly as expected. Markets will produce surprises, tax laws will change, healthcare expenses will fluctuate, and personal priorities will evolve. A plan built around one precise projection is therefore less useful than one with multiple ways to adapt.

Tax diversification provides one form of flexibility. Cash reserves provide another, while adjustable discretionary spending can help during prolonged market downturns. Delaying or accelerating certain expenses can also give the household room to respond when circumstances change.

This is why guardrails are often more useful than rigid rules. Instead of promising to spend exactly the same inflation-adjusted amount every year, a retiree might reduce discretionary spending after a severe market decline and increase it again after recovery. Flexibility can improve sustainability without requiring unnecessarily conservative spending from the beginning.

A strong plan does not predict every future event. It makes sure that when something unexpected happens, the household has more than one reasonable response.

14. Use the Five-Year Runway to Fix Problems While You Still Can

The five years before retirement are valuable because employment income gives you options. You may still be able to save aggressively, change retirement-plan contributions, build cash reserves, refinance debt, purchase insurance, or adjust the timing of major expenses. Those choices can become harder once regular wages stop.

This is also the period to test retirement spending. Try living closer to the retirement budget while still working and save the difference. If the budget feels unrealistic, it is far better to discover that before leaving the job.

Reviewing the plan annually also helps identify whether your retirement date still makes sense. A major market gain might create additional flexibility, while a downturn or unexpected expense could suggest working slightly longer. The goal is not to change plans constantly, but to keep the decision grounded in current reality.

Five years is long enough to make meaningful changes without requiring perfect foresight. Used well, it can turn retirement from a date on the calendar into a deliberate transition.

The Order Matters as Much as the Strategy

Most retirement mistakes are not caused by ignoring every good idea. They happen because decisions are made independently. Someone claims Social Security before analyzing taxes, completes a huge Roth conversion before considering Medicare, or rolls a pension into investments before deciding how much guaranteed income the household actually needs.

The better process starts with spending, then income, then taxes and account structure. After that, healthcare, Social Security, pension decisions, investment allocation, and estate planning can be coordinated around the same objective. Each decision informs the next one.

Retirement becomes much easier when the plan provides a sequence instead of a collection of disconnected strategies. You do not need to optimize everything perfectly, but you do need to know which decision comes first.

The final five years before retirement can be among the most valuable planning years of your financial life. Use them to understand what retirement costs, build tax flexibility, coordinate important dates, and establish a withdrawal plan before the paycheck disappears. The goal is not simply reaching retirement with enough money it is arriving with a system that tells you how to use it.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.