5 Financial Moves You Should Make Five Years Before Retirement

Retirement is a major life milestone that requires careful preparation, especially in the five years leading up to it. This period is crucial for fine-tuning your finances to ensure a smooth transition from working life to leisure. By taking proactive steps now, you can avoid common pitfalls, maximize your savings, and create a sustainable income stream for your post-work years. This article outlines

five essential financial moves

to implement five years before retirement, drawing from expert financial planning principles to help you build a secure future.

1. Calculate Your Post-Retirement Budget

The foundation of any solid retirement plan is understanding your future expenses. Five years before retirement, create a detailed

post-retirement budget

by listing all monthly expenses that will persist or change. Start with fixed costs like housing (rent or mortgage), utilities, car payments, insurance premiums, and property taxes. Then, factor in variable expenses such as groceries, transportation, entertainment, and travel—activities many retirees prioritize.

Don’t overlook one-time or irregular costs, including home repairs, new appliances, or family events like weddings. Experts recommend assuming your retirement expenses will be 70-80% of your pre-retirement income, but track your current spending for accuracy. Use tools like spreadsheets or apps to project inflation-adjusted costs; for instance, if groceries cost $600 monthly today, they could rise to $800 in five years at 3% annual inflation.

• Track current spending: Review bank statements and credit card bills from the past 12 months to identify patterns.
• Adjust for lifestyle changes: Retirement might mean more leisure spending but less commuting or work attire costs.
• Build in buffers: Add 10-20% for unexpected healthcare or emergency expenses.

A realistic budget ensures your savings and income sources align with your needs. According to the Social Security Administration, average retirees spend about $1,500 monthly on housing alone, underscoring the need for precision.

2. Eliminate High-Interest Debt

High-interest debt, particularly credit card balances and personal loans, can erode your retirement nest egg. Five years out, prioritize paying off these obligations to free up cash flow. Consumer debt with rates above 10% compounds quickly, diverting funds from savings.

Adopt the debt snowball or avalanche method: pay minimums on all debts, then aggressively tackle the highest-interest or smallest balance first for momentum. Refinance if possible, but avoid new debt. For example, clearing a $10,000 credit card at 18% interest saves $1,800 annually in interest alone.

Debt Type	Average Interest Rate	Priority Level
Credit Cards	15-25%	High
Personal Loans	10-15%	High
Auto Loans	5-8%	Medium
Mortgage	3-6%	Low

Post-debt freedom, redirect those payments to retirement accounts. This move not only reduces stress but boosts your net worth significantly.

3. Review and Adjust Your Investment Portfolio

With retirement approaching, shift your portfolio from growth-oriented assets to more conservative ones to protect against market volatility. Five years prior is ideal for gradual rebalancing: reduce stock exposure from 60-80% to 40-60%, increasing bonds and cash equivalents.

Assess your risk tolerance—volatility that was tolerable at 40 may be unnerving at 60. Diversify across asset classes: stocks for growth, bonds for income, and alternatives like REITs for stability. Consider target-date funds that automate this glide path.

• Conduct a portfolio audit: Calculate your asset allocation and compare to benchmarks like the “100 minus age” rule (e.g., 60% stocks at age 60).
• Minimize fees: Switch to low-cost index funds (expense ratios under 0.2%).
• Plan withdrawals: Model sequences using the 4% rule, withdrawing 4% annually adjusted for inflation.

Recent market data shows balanced portfolios outperforming all-stock ones during downturns, preserving capital for decumulation.

4. Plan for Healthcare Costs

Healthcare is a top retirement expense, often underestimated. Medicare starts at 65, but gaps exist before then or in coverage (e.g., deductibles averaging $1,600 for Part A hospital stays). Five years out, evaluate options: COBRA, marketplace plans, or spouse’s insurance.

Build a

health savings account (HSA)

if eligible—contributions are triple tax-advantaged. Estimate lifetime costs: Fidelity projects a 65-year-old couple needs $315,000 for premiums and out-of-pocket expenses in 2024 dollars. Factor long-term care insurance if family history suggests needs.

Proactive steps include annual checkups, healthy habits to lower premiums, and shopping plans via Healthcare.gov. This preparation prevents medical debt from derailing retirement.

5. Maximize Social Security and Other Income Streams

Social Security provides a reliable base, but timing claims impacts lifetime benefits. Five years before, use SSA.gov’s calculator to model scenarios: claiming at 62 reduces benefits 30%, while delaying to 70 increases them 24% (8% annual credit).

Coordinate with pensions, annuities, or part-time work. For married couples, spousal benefits (up to 50% of partner’s) or survivor options matter. Bridge gaps with Roth conversions to manage taxes in lower brackets now.

• Breakeven analysis: Claim early if health is poor; delay for longevity.
• Tax optimization: Withdraw from traditional IRAs strategically.
• Diversify income: Rental properties or dividends supplement SSA’s average $1,900 monthly check.

Optimizing this can add tens of thousands over decades.

Frequently Asked Questions (FAQs)

What if I’m behind on retirement savings five years out?

Focus on maxing contributions (2026 limits: $24,000 to 401(k), $7,500 catch-up if 50+), cut discretionary spending, and consider side gigs. Small changes compound powerfully.

Should I pay off my mortgage before retiring?

Not necessarily if rates are low (under 4%); investing elsewhere may yield more. Prioritize peace of mind and cash flow.

How much should I have saved by retirement?

Aim for 10-12x annual salary by 65, per Fidelity guidelines, adjusted for Social Security and pensions.

Is now the time to downsize my home?

Consider it if maintenance burdens you; it frees equity for investments but weighs moving costs.

What role does inflation play in planning?

Assume 2-3% annually; stress-test your portfolio to ensure growth outpaces it.