The Five Years Before Retirement: Decisions That Can Shape the Next 30

Jul 23

3 min read

Retirement is a major life milestone that many look forward to, but the years leading up to it are just as important as the years after. The five years before retirement offer a critical window to make decisions that will influence your financial security, lifestyle, and overall well-being for the next three decades. Taking thoughtful steps during this period can help ensure a smoother transition and a more fulfilling retirement.

Eye-level view of a calendar marked with retirement planning notes

Assess Your Financial Situation Clearly

Five years before retirement is the time to take a detailed look at your finances. This means reviewing your savings, investments, debts, and expected income sources. Many people underestimate how much money they will need, so it’s crucial to create a realistic budget that reflects your anticipated lifestyle.

Calculate your expected monthly expenses in retirement, including housing, healthcare, travel, and hobbies.
Review your retirement accounts such as 401(k), IRAs, and pensions to understand your withdrawal options and tax implications.
Consider any outstanding debts and create a plan to pay them off before retiring.

For example, if you currently spend $4,000 a month, but expect to travel more and have higher healthcare costs, your budget might need to increase to $5,000 or more. Adjusting your savings goals accordingly can prevent surprises later.

Maximize Retirement Contributions and Catch Up

If you are still working, the five years before retirement are a prime time to boost your retirement savings. Many retirement plans allow “catch-up” contributions for people over 50, which means you can contribute more than the standard limit.

Take full advantage of catch-up contributions in your 401(k) or IRA.
If possible, increase your savings rate gradually each year.
Avoid early withdrawals from retirement accounts to prevent penalties and reduce your nest egg.

For instance, in 2024, individuals aged 50 and older can contribute an extra $7,500 to their 401(k) on top of the standard $22,500 limit. This can add up to significant additional savings over five years.

Plan for Healthcare and Long-Term Care

Healthcare costs tend to rise with age, and planning for these expenses is essential. Medicare eligibility begins at 65, but it doesn’t cover everything. Long-term care, such as assisted living or in-home care, can be costly and is often not covered by Medicare.

Research Medicare plans and supplemental insurance options.
Consider long-term care insurance to protect your assets.
Schedule health check-ups and address any medical issues early.

For example, a couple retiring at 65 might spend an average of $300,000 on healthcare and long-term care over their lifetime, according to a 2023 study by Fidelity Investments. Planning ahead can help avoid financial strain.

High angle view of a person reviewing healthcare insurance documents at a desk

Decide When and How to Claim Social Security

Social Security benefits can be claimed anytime between age 62 and 70, but the timing affects the monthly amount you receive. Claiming early reduces benefits, while delaying increases them.

Use online calculators to estimate your benefits at different claiming ages.
Consider your health, family history, and financial needs when deciding when to claim.
Coordinate with your spouse to maximize combined benefits.

For example, claiming Social Security at 62 might reduce your monthly benefit by up to 30% compared to waiting until full retirement age. Delaying until 70 can increase benefits by up to 8% per year after full retirement age.

Think About Your Retirement Lifestyle

Retirement is not just about money; it’s about how you want to live your life. The five years before retirement are a good time to explore your interests, hobbies, and social connections.

Try out activities you want to pursue in retirement, such as volunteering, part-time work, or travel.
Consider where you want to live. Downsizing or relocating can affect your finances and quality of life.
Build a support network to stay socially engaged.

For example, some retirees choose to move to smaller homes in warmer climates to reduce expenses and enjoy a more relaxed lifestyle. Others stay close to family or friends for support.

Prepare Your Estate and Legal Documents

Having your legal affairs in order can save your loved ones stress and confusion later. This includes wills, powers of attorney, and healthcare directives.

Update or create a will/trust to specify how your assets should be distributed.
Assign durable power of attorney for financial and healthcare decisions.
Review beneficiary designations on retirement accounts and insurance policies.

Taking these steps ensures your wishes are respected and can prevent costly legal battles.

Final Thoughts

The five years before retirement offer a unique chance to shape the next 30 years of your life. By reviewing your finances, maximizing savings, planning for healthcare, deciding on Social Security timing, envisioning your lifestyle, and preparing legal documents, you can build a strong foundation for a secure and enjoyable retirement. Start now to take control of your future and make the most of this important transition.