5 Years To Avoid Retirement Regret | Retirement Countdown Part 2 | #057 The Functional Retirement Podcast

Preparing for Retirement: Five Years Out

As you approach the final stretch before retirement, the five-year mark is a crucial time for fine-tuning your plans and ensuring that you are on track to achieve your retirement goals. In this article, we will explore the essential steps you should take five years out from retirement, drawing insights from a recent podcast episode by Thatcher Taylor, a certified financial planner and owner of ProPath Financial.

Understanding Your Retirement Vision

By the time you reach the five-year mark, you should have a clear vision of what you want your retirement to look like. This includes articulating your desired retirement date, estimating your income needs, and outlining your lifestyle preferences. You should be able to answer questions like:

• When do I want to retire?
• How much income will I need to maintain my desired lifestyle?
• Where will I live, and what activities will I engage in?
• How will I stay healthy and active during retirement?

This clarity is essential, as it allows you to make informed decisions about your financial strategy moving forward.

Investment Strategy Refinement

At the ten-year mark, your investment strategy was likely focused on growth, with a portfolio that may have been heavily weighted in equities. However, as you approach retirement, it’s time to adjust your investment strategy to preserve wealth rather than accumulate it. Five years out, you should start to:

• Assess your current expenses and how they will translate into retirement needs.
• Adjust your portfolio to ensure you have assets available for your first year of retirement.
• Consider a more conservative approach to investing, reducing exposure to high-risk equities.

This shift in strategy is crucial, as it prepares you for the financial realities of retirement and helps mitigate risks associated with market volatility.

Maximizing Your 401(k) and Other Retirement Accounts

Five years out is also the time to ensure that your 401(k) and other retirement accounts are functioning optimally. This includes:

• Contributing enough to receive any employer match.
• Evaluating whether to contribute pre-tax or post-tax, depending on your tax strategy.
• Considering whether you should be maxing out contributions to your retirement accounts.

By taking these steps, you can maximize your retirement savings and ensure that you are on track to meet your income needs.

Developing a Distribution Strategy

As you approach retirement, it’s essential to have a clear understanding of your income distribution strategy. Five years out, you should have a reasonable idea of:

• How and when you will access your retirement savings.
• Your tax strategy, including which accounts to draw from first.
• Your Social Security strategy, including when to start taking benefits and how much you can expect to receive.

Having a well-defined distribution strategy will help you manage your income effectively and minimize tax liabilities during retirement.

Planning for Healthcare Costs

Healthcare is a significant consideration as you approach retirement. By the five-year mark, you should have a good understanding of your medical expenses and how they will impact your retirement plan. This includes:

• Knowing how close you are to qualifying for Medicare.
• Evaluating any potential gaps in coverage and how to address them.
• Factoring in healthcare costs into your overall retirement budget.

Being proactive about healthcare planning can help you avoid unexpected expenses and ensure that you have the necessary coverage when you retire.

Maintaining Your Health

Your health plays a critical role in your retirement planning. Five years out, you should assess your current health status and consider how it will affect your retirement lifestyle. This includes:

• Evaluating your current health and any ongoing medical conditions.
• Developing a plan to stay active and engaged in your retirement years.
• Considering how your health will impact your financial needs, including potential long-term care costs.

By prioritizing your health, you can enhance your quality of life during retirement and reduce the financial burden of healthcare expenses.

Conclusion

As you approach the five-year mark before retirement, it’s essential to take a proactive approach to your planning. By refining your retirement vision, adjusting your investment strategy, maximizing your retirement accounts, developing a distribution strategy, planning for healthcare costs, and maintaining your health, you can set yourself up for a successful transition into retirement. Remember, this is not the time to take your foot off the gas; rather, it’s a critical period to ensure that all elements of your retirement plan are in place.

If you need assistance with your financial journey, consider reaching out to a certified financial planner who can help guide you through this important phase. Stay tuned for the next episode in this series, where we will discuss what to focus on one year out from retirement.

‍