Retirement Roadmap: 5 Tips to Follow When You’re 5 Years from Retiring

You’re five years from retirement and you’re getting excited, making plans for your life after your career. Those final few years also comprise a critical period for successfully making this transition.

The five-year mark is a good time for an in-depth meeting with your financial planner. Together, you can review and update your retirement plan as needed to make sure your retirement savings and investment accounts are on track to achieving your desired retirement lifestyle.

In a previous article, we detailed steps to take 10 years before retiring. Now, we’re building out your road map to include five tips to follow in the final five years before retirement.

1. Review Your Retirement Accounts

As you get closer to retirement, you generally want to reduce the volatility in your overall portfolio to help increase your ability to enjoy stable income in retirement. This step includes reviewing potential volatility across all your accounts, such as 401(k) and Roth IRA plans.

If you’ve been working with a financial planner, odds are you’re already on a glide path in this direction. You may have covered specifics such as whether to reduce the proportion of stocks and increase the proportion of bonds.

Whether you are working with a financial advisor or not, consider reviewing your investment strategy to make sure it’s aligned with your plans to retire in five years. That way, you can help insulate your investments from negative events such as recessions rather than seeing your portfolio’s value plummet and potentially causing you to delay retirement.

You’ll also want to review how your retirement income aligns with your expected expenses. If it looks like you’ll have a shortfall, you may want to consider how you can increase your retirement income (or reduce your expenses). We generally recommend that this strategy avoids increasing investment risk, but your situation may differ. A financial planner can help you determine what course of action is needed. Potential solutions can include delaying your Social Security benefits, increasing your current savings rate, or preparing for part-time work in retirement.

2. Estimate Health Care Costs

One of the largest retirement expenses that you may face, and which you should prepare for now, is health care. Health care costs are expected to rise for the foreseeable future and can vary greatly depending on your needs. On average, out-of-pocket expenses for Medicare beneficiaries enrolled in Parts A and B equal nearly $6,000 per year, according to the Kaiser Family Foundation.

As a starting point, try to estimate your out-of-pocket expenses based on medical conditions that you anticipate and services that Medicare won’t cover, such as dental or vision care. Now is also a good time to build a cushion for unexpected expenses.

It’s a good idea to discuss strategies with your financial planner to account for potential health care costs, rather than having unexpected expenses erode your retirement nest egg. Possible solutions include purchasing supplemental insurance or increasing your savings.

3. Create a Long-Term-Care Plan

With Americans’ increased longevity, more of us than ever will need long-term care at some point, such as the services of a home health aide or an assisted living facility.

While it may be unpleasant to think about these scenarios, it’s important to prepare for them. Contrary to popular understanding, you won’t be able to depend on Medicare to cover these costs. Your advance work now can include creating a plan with your loved ones for care you might receive, including your preferences and potential costs.

Depending on your life expectancy and assets, purchasing long-term-care insurance may be appropriate to allay the risk of large expenses—which can add up shockingly fast. The average monthly cost nationally for home health aides totals over $4,000, according to insurer Genworth.

However, long-term-care insurance can be more expensive than you’re comfortable paying, and you may be better off trying to work potential costs into your retirement plan. Speaking with your financial planner about your options could help you feel more confident about your ability to afford long-term care if needed.

4. Consider Housing

Do you want to stay in your home when you retire? Or will it be an ideal time to downsize? You and your spouse should consider your options and plan accordingly. This decision will probably affect other areas of your retirement plan—for example, the proceeds from a house sale could help you build a cushion for potential health care costs.  

Your housing decisions can also have a big impact on your lifestyle. If your goals involve significant travel, for example, you may not want to be bogged down by managing all the details that go into owning a large home.

In contrast, if you plan to stay in your community and spend more time with family, you could assess any changes you would like to make to your home so that it meets your needs in retirement. Make sure to account for these expenses in your retirement planning!

5. Prepare for a New Lifestyle

As a final step, you should begin testing what your new lifestyle will be like. Many people struggle with the transition from working full-time to having open-ended days. If you don’t already know what you’re going to do in retirement, start thinking about how you might like to spend your time.

If you’d like to explore new hobbies, you can give them a test run now to see how much you like them before diving in. Similarly, if you plan to spend more time at home, you could try some staycations to get a taste for your lifestyle and how you might enhance it. Preparing now can help you enjoy your time more once you get to that stage.

Retirement planning is complex. Health care and long-term care especially can offer unexpected costs, and you need to account for potentially significant changes to your lifestyle. That’s why you want to plan thoroughly.

It’s easy to feel overwhelmed, and if that’s you, feel free to reach out to us. Based in greater Cincinnati, Ohio, our fee-only advisory firm offers comprehensive retirement planning and would be happy to discuss how we may help you plan for a retirement you feel confident about.

Schedule a complimentary “get acquainted” meeting with a fee-only financial advisor to discuss your situation.