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- Within 5 Years of Retirement? 8 Things To Do Now (financebuzz.com)
The Home Stretch: Your 5-Year Retirement Game Plan
That golden age of retirement, once a far-off dream, can suddenly feel right around the corner when you’re within five years of leaving the workforce. This isn’t the time for aggressive financial gambles; it’s the critical period where smart, strategic decisions can profoundly impact your comfort and security in your later years. The goal now is to align your finances, maximize benefits, and minimize surprises so you can glide into retirement with confidence.
If you’re about five years out, here’s a breakdown of key areas to focus on before your regular paycheck becomes a thing of the past.
1. Envision Your Entire Retirement Journey
Many underestimate their future expenses once they stop working. Begin by outlining your essential costs – housing, food, transportation, insurance, and healthcare – then add in discretionary spending for travel or hobbies. A clear financial picture now helps you identify any potential gaps.
Don’t just plan for the early, active years. As Minneapolis-based financial planner Kari Polaski of Adaptive Financial Design points out, people tend to focus solely on the “go-go” phase of retirement.
“People are living longer and longer,” Polaski states, yet “People don’t like to think about what the ‘whole’ of their retirement will look like.”
She emphasizes the importance of planning for the middle and late phases, particularly concerning healthcare needs like long-term care or supplementing insurance shortfalls.
2. Embrace a Healthy Dose of Pessimism (For Your Own Good)
Five years out is the perfect time for a comprehensive retirement check-up. Review your savings, anticipated income sources, and how long your funds need to last.
Polaski recommends stress-testing your plan against various “what-if” scenarios, such as market downturns, unexpected high costs, or living well into your golden years.
“Plan for worst-case scenarios, not best-case,” Polaski advises. “Don’t plan around going back to work if you have to. You might not be able to, and you probably won’t want to.”
3. Master Your Social Security Strategy
Even if you’re not ready to file yet, understanding how your claiming age affects your benefits is crucial. Now is also the time to correct any inaccuracies in your earnings record before your benefits are calculated.
For many, working part-time after retirement offers a dual advantage: delaying Social Security to qualify for higher benefits and easing the transition from full-time work.
Polaski notes that continued work isn’t always financially driven. Many of her clients work part-time for the “happiness aspect,” saying, “They need to have that purpose. It’s just part of their personality.”
She highlights that the objective here is often maximum tax efficiency, which might involve strategies like backdoor Roth conversions before claiming Social Security.
4. Prepare for Medicare Decisions
Learning the fundamentals of Medicare now can help you avoid costly errors later. Polaski suggests considering any coverage gaps you might face between retirement and becoming eligible for Medicare at age 65.
She advises that when you’re one to two years away from Medicare enrollment, it’s a good time to start researching supplemental coverage options.
5. Conquer High-Interest Debt
Carrying debt into retirement is like trying to fix a leaky roof during a downpour. This is the moment to shed debt and manage your income wisely. High-interest credit card debt is particularly risky once your earnings become fixed.
Prioritize paying down balances now while you still have a steady cash flow. Entering retirement with fewer mandatory outgoing payments will provide greater financial flexibility.
6. Carefully Consider Your Retirement Residence
Housing typically represents one of the largest retirement expenses. Whether you plan to stay in your current home, downsize, or relocate, now is the time to crunch the numbers.
Factors like cost of living, access to healthcare, proximity to family, and state taxes can significantly impact how far your retirement savings will stretch. Delaying this planning can limit your options.
Remember that seemingly “retirement-friendly” states might not be so friendly after accounting for sales tax, rent, property insurance, medical care, or a lack of desired amenities.
7. Test-Drive Your Retirement Budget
Polaski often recommends that clients try living on their projected retirement income for a couple of months. This “trial run” can be incredibly revealing, uncovering spending habits you hadn’t noticed and highlighting areas where adjustments are needed to create a more realistic budget.
8. Organize Your Legal Documents
Before retirement begins, ensure your will, powers of attorney, healthcare directives, and other vital documents reflect your current wishes. Make sure any life changes, such as marriages, divorces, or new grandchildren, are properly incorporated.
Updating these documents now, and periodically every few years, helps safeguard your assets and ensures your preferences are clear should the unexpected occur.
The Bottom Line
The five years leading up to retirement are less about dramatic overhauls and more about smart, precise adjustments. Clarifying your future costs, reviewing benefits, reducing debt, and stress-testing your plan can help you steer clear of expensive mistakes and build confidence for the next chapter of your life.
And if you’re nearing retirement age without a solid plan, Polaski emphasizes that you still have powerful options focused on budgeting and automated savings. Don’t let a late start deter you; any plan is better than no plan at all.
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- Within 5 Years of Retirement? 8 Things To Do Now (financebuzz.com)