Retirement planning is about much more than choosing a retirement date or reaching a specific investment balance. The five years before retirement can be some of the most important years for preparing your finances, your income strategy, your healthcare coverage, and your personal plans for the next chapter of life.
Recently, I was talking with a client about a book that came up in conversation: The 5 Years Before You Retire by Emily Guy Birken. My client had heard a friend mention the book over coffee and asked me whether she really needed to start planning five years before she wanted to retire.
My answer was, of course.
Giving yourself at least five years to prepare can provide valuable time to identify potential problems, make thoughtful adjustments, and create a retirement plan that is designed around how you actually want to live.
At Dunncreek Advisors, we believe the goal of pre-retirement planning is to create a durable, stress-tested financial system that can replace your paycheck- not simply to reach an account-balance target.
That means thinking about retirement income, taxes, Social Security, Medicare, investments, estate planning, cash flow, and your lifestyle well before your final day at work.
Retirement Is Really Three Different Transitions
One concept I often discuss with clients approaching retirement is that retirement can involve three distinct changes.
These changes do not necessarily need to happen at the same time. In the days when traditional pensions were more common, they often did. For today's retirees, however, they may happen years apart and require different decisions.
Change #1: The Day You Leave Your Big Career Job
This is the day you leave the high-pressure, demanding position that may have provided your largest paycheck and most valuable employee benefits.
For some people, this means moving into part-time consulting. For others, it could mean working for a nonprofit, pursuing a passion project, or simply taking on less demanding work.
Change #2: The Day You Stop Working for Money
Eventually, you may decide that you no longer want or need to work for income at all.
This transition can provide significantly more freedom and leisure, but it also means your financial plan needs to stand increasingly on its own.
Change #3: The Day You Begin Drawing Income From Your Retirement Savings
Your retirement income may come from several sources, and those sources may begin at different times.
You might draw from cash and taxable investments first, delay certain retirement accounts, start Social Security later, or coordinate pension and other benefits around your overall tax and income strategy.
This is why retirement income planning should begin well before your retirement date.
The years leading up to retirement give you time to set the table and make the transition smoother.
What Should You Do Five Years Before Retirement?
If you are within five years of leaving your career, here are several areas worth addressing.
1. Build a Retirement Cash Reserve
Consider building a cash reserve that can help cover your expenses during the first 12–24 months after leaving your primary career.
Having a dedicated reserve can provide flexibility while you adjust to a new income pattern, begin consulting or part-time work, or deal with unexpected expenses.
More importantly, an adequate cash reserve may reduce the need to sell investments during an unfavorable market environment.
The right amount of cash depends on your spending needs, income sources, investment portfolio, risk tolerance, and overall retirement plan.
2. Test Drive Potential Retirement Locations
For many people, retirement also means changing where they live.
For example, many Minnesotans dream about spending winters somewhere warmer after leaving their careers.
Before purchasing a second home, consider renting in several potential locations for a month or two. A place that looks perfect for a one-week vacation may feel very different after several weeks of ordinary life.
Testing a location before making a major purchase can help you evaluate:
- Cost of living
- Healthcare access
- Taxes
- Weather
- Transportation
- Community
- Proximity to family and friends
- Activities and recreation
Your retirement lifestyle is an important part of your financial plan.
3. Lay the Groundwork for Consulting or Part-Time Work
If your retirement plan includes consulting after leaving your primary career, the years before retirement are an excellent time to prepare.
Become more active in professional organizations. Reconnect with former colleagues. Strengthen your professional network. Start having conversations with people who may eventually become clients or referral sources.
You do not necessarily need to build a full consulting practice before leaving your career.
But creating the relationships and professional visibility ahead of time can make the transition much easier.
4. Fine-Tune Your Retirement Income Plan
One of the biggest questions in retirement is not simply:
“How much money do I have?”
It is:
“How will I turn my assets into sustainable income?”
Your retirement income plan may include:
- Cash reserves
- Taxable investment accounts
- Traditional IRAs and 401(k)s
- Roth accounts
- Social Security
- Pension income
- Annuities or other guaranteed income sources
- Part-time or consulting income
The timing of each source matters.
A thoughtful retirement income strategy can help coordinate income, investment risk, taxes, and future spending needs.
5. Evaluate Social Security Timing
Social Security can be an important part of your retirement income plan, and the decision about when to claim benefits should be made in the context of your overall financial situation.
Social Security retirement benefits can generally begin as early as age 62, but claiming before your full retirement age can permanently reduce your monthly benefit. Delaying benefits can increase the monthly benefit up to age 70.
Create or log in to your my Social Security account to review your personal earnings history and retirement benefit estimates. The Social Security Administration provides personalized estimates for different claiming ages.
For married couples, Social Security planning can become even more important because each spouse's claiming decision can affect the household's overall retirement income strategy.
6. Add Durability to Your Retirement Income
Retirement is different from the accumulation years.
When you are working, your paycheck may allow you to continue investing through periods of market volatility. Once you begin relying on your portfolio for income, market declines can have a different impact.
This is why it can be valuable to build a portfolio and income strategy designed to withstand different economic environments.
For Minnesota retirees, tax considerations may also influence how you structure portions of your fixed-income portfolio. Depending on your circumstances, municipal bonds and other tax-efficient investments may have a role in your plan.
The right solution depends on your tax bracket, account types, investment objectives, risk tolerance, and overall financial plan.
7. Develop an Income Distribution Strategy
One of the most important retirement decisions is determining which accounts you use for income and when.
For example, should you withdraw from taxable accounts first? Should you use traditional retirement accounts earlier? Should you consider Roth conversions? When should Social Security begin?
The answers can have significant implications for your lifetime tax bill.
They may also affect Medicare costs, including income-related adjustments to Medicare premiums.
A fiduciary financial planner can help model different withdrawal strategies and compare the potential tax consequences before you make major decisions.
8. Stress-Test Your Retirement Plan
A retirement plan should not only work when markets are performing well.
Ask what happens if:
- The stock market experiences a significant decline shortly after you retire.
- Inflation remains elevated.
- You live much longer than expected.
- Your healthcare costs increase.
- You decide to spend more during your first decade of retirement.
- Your consulting income does not materialize.
- Your spouse retires earlier than expected.
A retirement plan stress test can help you understand how different economic and personal scenarios could affect your income and portfolio.
The objective is not to predict the future.
It is to understand your options before the future arrives.
9. Clarify Your Health Insurance Strategy
Healthcare is one of the most important pieces of a pre-retirement plan, particularly if you plan to leave your career before age 65.
If you retire before becoming eligible for Medicare, you will need a strategy for health insurance until Medicare coverage begins.
If you are approaching age 65, you will also need to coordinate your transition from employer-sponsored coverage to Medicare.
Medicare's Initial Enrollment Period generally lasts seven months: it begins three months before the month you turn 65 and ends three months after the month you turn 65.
If you continue working past 65 and have qualifying employer group health coverage, you may have a Special Enrollment Period for Part B after the employment or coverage ends. Medicare generally provides an eight-month Special Enrollment Period in that situation.
Because Medicare decisions can have long-term financial consequences, consider evaluating your options well before your retirement date.
10. Map Your Medicare Decisions in Advance
Medicare involves more than simply signing up at age 65.
You will need to evaluate your options, which may include:
- Original Medicare with a Medicare Supplement policy and Part D prescription coverage
- Medicare Advantage
- Prescription drug coverage
- Your preferred physicians and healthcare systems
- Prescription needs
- Dental, vision, and hearing coverage
- Potential out-of-network costs
- Future healthcare needs
Medicare enrollment rules can be complex, and the appropriate strategy depends on your circumstances. Medicare recommends checking your specific enrollment situation and deadlines rather than assuming that everyone follows the same timeline.
11. Think About Long-Term Care
Healthcare planning does not end with Medicare.
You should also consider how you would pay for potential long-term care.
Ask yourself:
- Could you afford to pay for care from your assets?
- Do you have long-term care insurance?
- Does your employer offer any relevant coverage?
- What type of care would you want?
- Where would you want to receive care?
- How would long-term care expenses affect your spouse or family?
- At what point would you need to make a concrete plan?
These questions can be uncomfortable, but addressing them before retirement gives you more choices.
12. Clarify Your Actual Retirement Cash Flow
When you are earning a regular paycheck, it is easy to lose track of exactly how much you spend.
As retirement approaches, that needs to change.
You want a clear understanding of what you actually need to cover your basic monthly expenses.
Start by separating spending into categories such as:
- Essential living expenses
- Discretionary spending
- Travel
- Healthcare
- Home maintenance
- Gifts and charitable giving
- Taxes
- Large one-time purchases
Once you have a realistic spending number, you can better determine how much income your retirement portfolio needs to generate and how large your cash reserve should be.
13. Maximize Your Available Benefits Before Retirement
The final years of employment can provide valuable opportunities to strengthen your financial position.
Review your employer benefits and make sure you understand what is available to you.
Consider:
- Capturing the full employer match in your retirement plan
- Maximizing retirement plan contributions when appropriate
- Evaluating Roth versus traditional contributions
- Building your cash reserve
- Reviewing pension options
- Understanding deferred compensation
- Reviewing stock options or restricted stock
- Understanding retiree healthcare benefits
- Determining whether unused PTO can be paid out
- Reviewing group life insurance conversion options
- Understanding retirement plan distribution rules
Do not assume your company's benefits package will automatically translate into the best retirement strategy.
Five years before retirement is a good time to understand what you have- and determine how each benefit fits into your broader plan.
14. Review Your Estate Plan
Retirement is also an excellent time to review your estate plan.
At a minimum, make sure your estate planning documents and beneficiary designations reflect your current wishes and family circumstances.
Common estate planning documents include:
Will
A will generally specifies how assets should be distributed at death and may name an executor and guardians for minor children.
Durable Power of Attorney
A durable financial power of attorney can authorize someone you trust to manage financial and legal matters if you become unable to do so yourself.
Healthcare Power of Attorney
A healthcare power of attorney designates someone to make healthcare decisions on your behalf if you are unable to make or communicate those decisions.
Advance Healthcare Directive
An advance directive can document your preferences regarding medical treatment and end-of-life care.
Revocable Living Trust
A revocable living trust can provide a framework for managing and distributing certain assets during your lifetime and after death. Whether a trust is appropriate depends on your individual circumstances and estate planning objectives.
HIPAA Authorization
A HIPAA authorization can allow designated individuals to obtain certain medical information from healthcare providers.
Beneficiary Designations
Review beneficiary designations on retirement accounts, life insurance policies, and other accounts.
Beneficiary designations can have significant consequences and should be coordinated with your overall estate plan.
Estate planning involves legal decisions, so work with an appropriately qualified estate planning attorney for legal advice.
15. Review Your Current Home
Finally, take a hard look at your current home.
Is it still the right home for the next stage of your life?
Consider:
- Will you still want to live there after you stop commuting?
- Is the location convenient for healthcare, family, and activities?
- Is the house manageable as you get older?
- Are there deferred maintenance projects?
- Will you need a new roof, HVAC system, carpeting, or exterior work?
- Would downsizing improve your lifestyle?
- Would moving change your tax or insurance costs?
Large home repairs and moves can become significant retirement expenses.
Planning for them before retirement can help prevent them from becoming financial surprises later.
The Five-Year Retirement Planning Checklist
Five years before retirement, you do not need every decision finalized.
You do need a process.
Your pre-retirement checklist should include:
- Build an appropriate cash reserve.
- Define your expected retirement spending.
- Develop a retirement income strategy.
- Evaluate Social Security timing.
- Review your investment and tax strategy.
- Stress-test your retirement plan.
- Plan for healthcare and Medicare.
- Consider long-term care needs.
- Maximize relevant employer benefits.
- Review your estate plan and beneficiary designations.
- Evaluate your home and potential future living arrangements.
- Think about what you want your retirement years to actually look like.
Retirement Planning Is a Transition, Not a Date
The biggest mistake people make when approaching retirement is thinking of it as a single event.
It is usually a transition.
You may leave your career before you stop working. You may stop working before you begin Social Security. You may begin drawing from one account years before you need to draw from another.
That creates both complexity and opportunity.
Starting five years before retirement gives you time to make deliberate decisions rather than rushed ones.
At Dunncreek Advisors, we believe retirement planning should be about more than asking, “Do I have enough?”
It should answer a more important question:
“Do I have a clear, durable plan for turning what I've built into the life I want to live?”
Ready to Build Your Five-Year Retirement Plan?
If retirement is five years- or even ten years- away, now is the time to start putting the pieces together.
Dunncreek Advisors can help you evaluate your retirement income strategy, Social Security timing, investment portfolio, tax considerations, healthcare planning, and estate planning needs so you can approach retirement with greater clarity and confidence.
Schedule a retirement planning conversation with Dunncreek Advisors to start building your personalized pre-retirement plan.
Frequently Asked Questions
1. What should I do five years before retirement?
Five years before retirement, focus on cash flow, retirement income, Social Security, taxes, healthcare, investments, estate planning, and employer benefits. This timeframe gives you an opportunity to stress-test your plan and make adjustments before your paycheck stops.
2. How much cash should I have before I retire?
There is no universal cash-reserve amount because the appropriate level depends on your spending, income sources, investments, and risk tolerance. Many retirees consider maintaining enough cash to cover a meaningful period of expenses so they are not forced to sell investments during a market downturn.
3. When should I start planning for Medicare before retirement?
Ideally, Medicare planning should begin well before age 65, particularly if you plan to retire before then or continue working past 65. Medicare's Initial Enrollment Period generally spans seven months around your 65th birthday, while qualifying employer coverage may create an eight-month Special Enrollment Period after employment or coverage ends.
This article is for educational purposes only and should not be considered individualized investment, tax, legal, or insurance advice. Retirement, Social Security, Medicare, and estate planning decisions should be evaluated based on your individual circumstances and, when appropriate, with qualified professionals.