8 Steps to Take When You’re 5 Years From Retirement

Investing, Retirement Planning
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By Michael Chamberlain

Learn more about Michael at NerdWallet’s Ask an Advisor

The closer you get to retirement, the more critical it is that you do all you can to secure your financial future.

If you’re only five years from retirement and haven’t made significant progress toward your planning and saving goals, it might be too late to fund the retirement of your dreams. You might have to work a few years longer than you planned or have a part-time job in retirement. But you can still improve your prospects by starting to plan today.

And even if you have been diligent about retirement planning and saving, now is a good time to take a closer look at your current financial situation and take action on some key aspects of your retirement plans.

The National Association of Personal Financial Advisors, the largest fee-only financial advisor group in the U.S., has gathered its top advice for people at various stages of planning for retirement. Here are eight items NAPFA recommends you address when you’re five years from retirement:

  1. Separate your retirement “needs” from your retirement “wants.” Needs include your essential living expenses, such as food and housing costs, taxes and insurance premiums, while wants include discretionary expenses, such as travel and entertainment.
  2. Revisit your retirement income options. After reviewing your projected expenses, determine where your retirement income will come from. This could include Social Security benefit payments, required minimum distributions from your retirement accounts, annuity payments and any other regular income you expect to receive. If there’s a gap, create a five-year plan to cover it, perhaps with your investment portfolio, part-time work or another income source.
  3. Consider tax-saving moves for your retirement accounts. Use an online calculator to estimate your tax bill during retirement. When you begin withdrawing your retirement savings, you’ll be taxed on those distributions, unless they’re from a Roth IRA. Ensure that you take advantage of tax-saving opportunities the IRS provides, such as Roth IRA conversion strategies that could result in tax-free withdrawals.
  4. Doublecheck your Social Security earnings. You can request that information here. If the Social Security Administration has made any mistakes on your earnings record, it could affect your benefit. And be sure to explore your Social Security claiming options. Waiting to claim once you’re eligible will increase your benefit amount, but it’s not the best strategy in all cases.
  5. Understand your employee benefits. Ask your HR department how your current health insurance will interact with Medicare. Get information about pension or defined contribution options and other retiree benefits.
  6. Review your asset allocation. If you haven’t already moved your portfolio into more conservative investments, now might be a good time to do so.
  7. Understand what will happen with company stock. Find out how long your stock-based compensation will last and whether you’ll continue to receive any stock awards after retirement.
  8. Update (or create) your estate documents. Make sure that your named executors and proxies are still correct and that they understand your estate plans. If you haven’t already drawn up documents, meet with a lawyer to get started.

You’ve likely spent a lot of time thinking about what your retirement will be like. Hopefully you’ve also done some planning to make sure you can afford the lifestyle you want. If you need help with the steps outlined above or have any other concerns about preparing for retirement, consider working with a financial professional. You can find fee-only planners through NAPFA.


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