How to prepare for retirement within 5 years

Retirement is closer than you think, and those final five years are a critical time to get your financial plan in order. Whether it’s maximizing your 401(k), boosting your savings, or rethinking your investments, every decision now can shape your future. Let’s dive into practical steps to help you retire with confidence.

Take stock of your current finances

Before making any big changes, you need a clear picture of where you stand. Start by reviewing your retirement accounts, including your 401(k) and IRAs. Are you saving enough to meet your goals?

Take the time to calculate how much income you’ll need in retirement. This will help you determine if you’re on track or if adjustments are necessary. Don’t forget to create a budget that includes major expenses like healthcare and travel. Knowing your numbers now can save you from surprises later.

Maximize your 401(k) contributions

If you’re not already contributing the maximum to your 401(k), now’s the time to start. For 2024, the annual limit is $22,500, with an additional $7,500 catch-up contribution if you’re over 50.

Employer matching contributions can also make a big difference. Be sure to contribute enough to take full advantage of any matching program.

As you get closer to retirement, consider shifting your investments within the 401(k) to more conservative options like bonds or stable value funds. This can help protect your savings from market volatility.

Build a strong emergency fund

One of the most overlooked aspects of retirement planning is having an emergency fund. Unexpected expenses can derail even the best plans if you’re not prepared.

Aim to save six to twelve months’ worth of living expenses in a high-yield savings account. This cushion can prevent you from dipping into your retirement accounts during market downturns or emergencies.

Adjust your investment strategy

Your investment approach in your 30s likely won’t work in your late 50s or early 60s. As retirement nears, shifting to a more conservative strategy can help protect your savings.

Instead of focusing solely on growth, consider a mix of income-producing investments like dividend-paying stocks or bonds. These can provide steady income during retirement while reducing overall risk.

Make it a habit to review your portfolio at least once a year. Regular adjustments ensure your investments align with your goals and timeline.

Manage debt before retirement

Carrying debt into retirement can put unnecessary pressure on your finances. Start by tackling high-interest debt, such as credit cards, as soon as possible.

If you have a mortgage, consider whether paying it off before retiring makes sense for your situation. While being mortgage-free can reduce your expenses, it’s essential to weigh this against your overall cash flow needs.

Limit new debt during this time. Avoid large purchases or new loans unless absolutely necessary.

Plan your Social Security strategy

Social Security benefits will likely play a key role in your retirement income. Knowing when to claim your benefits can significantly impact how much you receive.

Delaying benefits until age 70 increases your monthly payment, but that might not be the right strategy for everyone. Use the Social Security Administration’s online tools to estimate your benefits and decide the best time to claim based on your personal circumstances.

If you’re married, coordinating with your spouse can help maximize your combined benefits.

Don’t overlook healthcare

Healthcare is one of the largest expenses retirees face, so it’s important to plan ahead.

Make sure you understand how Medicare works and when to enroll to avoid penalties or gaps in coverage. You may also want to consider supplemental insurance or long-term care insurance to cover additional costs.

Start setting aside money now for out-of-pocket expenses like co-pays, medications, and unexpected medical needs. Being proactive can save you from financial stress later.

Create a withdrawal plan

Having a withdrawal strategy ensures your money lasts throughout retirement. Start by deciding how much you’ll need to withdraw from your savings each year. Many financial advisors recommend the 4% rule, which suggests withdrawing 4% of your savings annually, adjusted for inflation.

It’s also essential to understand required minimum distributions (RMDs). Once you turn 73, you’ll need to start withdrawing a minimum amount from traditional IRAs and 401(k)s.

Work with a financial advisor to create a tax-efficient withdrawal strategy. This can help you minimize taxes and keep more of your money working for you.

Think about your lifestyle

Retirement isn’t just about finances; it’s also about how you’ll spend your time. What do you want your days to look like?

Consider downsizing to a smaller home or relocating to a less expensive area. Both can reduce expenses and free up cash.

Staying active and engaged is equally important. Whether it’s part-time work, volunteering, or hobbies, having a plan for how you’ll stay busy can make retirement more fulfilling.

Key takeaways

Preparing for retirement within five years requires careful planning and smart adjustments. Focus on:

• Maximizing your 401(k) and other retirement savings.
• Shifting to a more conservative investment strategy.
• Paying down debt and building an emergency fund.
• Strategizing for Social Security and healthcare expenses.

The choices you make now can set you up for a financially secure and enjoyable retirement.

Ready to take the next step? Let us help you build a customized retirement plan. Book a free consultation with one of our advisors today!