What Pre-Retirees Should Be Doing 5 Years Before Retirement

Those who have followed my blog for some time know that most of my clients fall into the pre-retiree or recent-retiree categories. In my experience, some of the most impactful planning strategies occur within the 10-year retirement window — roughly five years before retirement and five years after.

That period requires a different level of attention.

During your primary working years, the goals are usually straightforward: increase income, manage expenses, build savings, and reduce debt. Ironically, that is often the easier part of financial planning. That’s not to diminish the hard work it takes to make progress in those areas, but the accumulation phase tends to be more forgiving.

Retirement planning is different.

How you distribute your savings in retirement can become even more important than how you accumulated them. Once your income is no longer coming from wages, you typically lose the flexibility to simply “earn more” to recover from mistakes or poor planning decisions.

To help clients prepare for this transition, I often create planning checklists and educational one-pagers tailored to their specific needs and goals. The challenge with a blog, of course, is that the audience is broad while retirement planning is highly personal.

So, rather than creating an exhaustive checklist, I’ll frame up eight important areas of focus for pre-retirees. Separately, I do maintain a more detailed retirement preparation checklist for clients and prospective clients who want a deeper dive. If that would be helpful to you, just ask. Our firm is intentionally small, so you’re not getting some automated lead funnel or outsourced content machine. The content comes directly from me, Eric Powers, CFP®, EA.

The 8 Areas of Focus for Pre-Retirees

Retirement often feels far away — until suddenly it isn’t.

For many people, the five years leading up to retirement are some of the most important financial years of their lives. Decisions made during this period can have a lasting impact on taxes, investment risk, healthcare costs, income sustainability, and overall peace of mind throughout retirement.

This article is intentionally broad in nature, but these are several key areas pre-retirees should begin evaluating before making the transition from earning a paycheck to living off accumulated assets.

1. Evaluate Your Retirement Income Plan

One of the biggest shifts in retirement is moving from saving money to generating income from investments and other resources.

About five years before retirement is a good time to begin estimating:

• Expected retirement spending

• Social Security benefits

• Pension income (if applicable)

• Investment withdrawals

• Required minimum distributions (RMDs)

• Potential part-time income

  
  

Expected Retirement Spending

I’m generally not a huge fan of rules of thumb because there are always exceptions — and many of those exceptions are common.

That said, one commonly cited guideline is that retirees may need roughly 80%–90% of their pre-retirement income to maintain their lifestyle. The theory is that spending naturally declines in retirement.

In reality, many retirees actually spend more in the early years of retirement.

Think about the “bucket list” years:

• Travel

• Hobbies

• Family experiences

• Delayed goals finally becoming reality

  
  

One client once told me their retirement goal was to “set foot on every continent.” That type of spending doesn’t exactly represent slowing down.

Social Security Benefits

Social Security remains one of the most uncertain planning topics today.

By now, most people have heard projections surrounding trust fund depletion somewhere around the mid-2030s. What that really means is that incoming payroll taxes may eventually be insufficient to fully support projected benefit obligations.

Will there be changes? Most likely.

Will politicians eventually act? Probably.

What those changes ultimately look like, however, is still highly uncertain.

The estimates you often hear range anywhere from roughly a 20%–40% reduction in projected benefits if no long-term solution is implemented. But the eventual fixes may involve complicated formula changes, means testing, delayed retirement ages, or other adjustments that affect retirees differently depending on income and demographics.

The best approach for now is to stay informed and recognize that Social Security remains an important source of guaranteed lifetime income for many retirees.

Investment Withdrawals & Tax Diversification

We’ve discussed tax diversification in previous blogs, but it’s worth revisiting here.

If you can better control your income in retirement, you may also improve your ability to manage taxes.

More specifically, controlling your MAGI (Modified Adjusted Gross Income) may help reduce exposure to:

• Higher tax brackets

• Medicare IRMAA surcharges

• Taxation of Social Security benefits

• Various income-based phaseouts

  
  

Of course, this level of flexibility generally requires assets spread across different tax categories:

• Tax-deferred accounts

• Roth accounts

• Taxable brokerage accounts

• Cash reserves

  
  

If all retirement assets are concentrated in tax-deferred accounts, future tax planning flexibility may become more limited.

Required Minimum Distributions (RMDs)

Ed Slott — a well-known IRA expert — famously referred to RMDs as the “Retirement Savings Time Bomb.”

The reason is fairly straightforward.

At some point, the IRS requires distributions from tax-deferred retirement accounts whether you need the income or not.

Using a simple example:

• A 75-year-old under the 2026 Uniform Lifetime Table has roughly a 4.07% required distribution factor.

• If that retiree has $2 million in tax-deferred retirement accounts, the required distribution would exceed $81,000 annually.

  
  

Now layer on:

• Social Security income

• Pension income

• Investment income

• Capital gains

  
  

Suddenly, retirees may find themselves pushed into higher tax brackets, exposed to Medicare premium surcharges, or phased out of deductions and credits.

This is one area where proactive planning can make a meaningful difference.

Setting aside all the commentary, quantifying retirement income sources helps answer one very important question:

Will your income sources realistically support the lifestyle you want in retirement?

2. Review Your Investment Risk

Many investors spend decades focused primarily on growth. As retirement approaches, however, risk management often becomes increasingly important.

A major market decline early in retirement can significantly affect long-term portfolio

sustainability — especially once withdrawals begin.

For those interested in researching this concept further, the term often used is: Sequence of Returns Risk.

Five years before retirement may be an appropriate time to:

• Review overall portfolio allocation

• Evaluate diversification

• Assess exposure to market volatility

• Consider how much risk is truly necessary

• Strengthen cash reserves

  
  

This does not necessarily mean becoming overly conservative. It simply means aligning investments more intentionally with time horizon, income needs, and long-term objectives.

3. Understand Your Future Tax Situation

This is an area we focus heavily on with clients for good reason.

Our tax system is extraordinarily complex, constantly evolving, and often highly inefficient from a planning perspective. Whether we like it or not, navigating that complexity has become an essential component of retirement planning.

Many people assume taxes will automatically decline in retirement. In reality, retirement can introduce entirely new tax challenges.

Retirees may generate taxable income from:

• Traditional IRA withdrawals

• 401(k) distributions

• Pensions

• Social Security benefits

• Capital gains

• Required minimum distributions

  
  

And many retirees are surprised by:

• Medicare IRMAA surcharges

• Higher taxation of Social Security benefits

• Widow’s penalty tax brackets

• Reduced deductions

  
  

Five years before retirement can be an ideal time to begin evaluating strategies such as:

• Roth conversions

• Tax diversification

• Capital gains management

• Withdrawal sequencing strategies

  
  

Proactive tax planning may help create significantly more flexibility later in retirement.

4. Estimate Healthcare and Medicare Costs

Healthcare is often one of the largest — and most underestimated — retirement expenses.

In retirement projections, we often model healthcare inflation at roughly double the general inflation rate. It’s a real expense that deserves real attention.

Pre-retirees should begin evaluating:

• Medicare enrollment timing

• Supplemental coverage options

• Prescription drug costs

• Long-term care considerations

• Employer healthcare transition plans

  
  

For individuals retiring before age 65, bridging the healthcare gap before Medicare eligibility can become a major planning factor.

Understanding these costs early may help avoid unpleasant surprises later.

5. Eliminate or Reduce High-Interest Debt

Entering retirement with large debt obligations can place unnecessary pressure on retirement income.

The years leading up to retirement can be an excellent time to evaluate:

• Credit card balances

• Auto loans

• Home equity debt

• Mortgage strategy

  
  

Some retirees prioritize entering retirement debt-free, while others strategically maintain low-interest debt. The right answer depends on overall cash flow, investment strategy, and risk tolerance.

6. Review Your Social Security Strategy

The timing of Social Security benefits can significantly impact lifetime retirement income.

Claiming early permanently reduces monthly benefits, while delaying benefits can increase future payments.

This topic has become even more complicated lately due to ongoing concerns about Social Security funding.

Some people have begun advocating for claiming benefits as early as possible out of fear future benefits may eventually be reduced. Personally, I don’t fully agree with the “take it early no matter what” mindset because Social Security is ultimately a lifetime planning decision.

If we knew exactly how long we were going to live, these decisions would be much easier. Unfortunately, retirement planning rarely comes with that level of certainty.

For now, I believe it makes sense to assume some form of future Social Security reform will occur — but likely not in a way that affects all beneficiaries equally.

As with many retirement assumptions:Make the best assumptions you can today, but remain flexible enough to adjust later.

Areas to evaluate include:

• Estimated benefits

• Break-even analysis

• Spousal coordination strategies

• Survivor benefit considerations

• Tax implications

  
  

7. Update Estate and Beneficiary Planning

Estate planning is not only about wealth transfer. It is also about ensuring your wishes are clearly documented and coordinated.

Pre-retirees should review:

• Wills

• Trusts

• Powers of attorney

• Healthcare directives

• Beneficiary designations

  
  

Outdated beneficiary forms are more common than many people realize — and beneficiary designations can override instructions contained in a will.

Regular reviews may help ensure accounts and estate documents still align with your intentions.

8. Build a Retirement Transition Plan

Retirement is both a financial transition and a psychological one.

Many new retirees initially feel hesitant about spending after decades of saving and accumulating wealth. That feeling is completely normal. For many people, the transition from earning income to drawing from savings simply feels unnatural at first.

One of the most common questions I receive is:“How much of my savings can I realistically spend in retirement?”

The honest answer is: It depends.

That may sound unsatisfying, but retirement spending is highly individualized.

Many people are familiar with the “4% Rule,” originally introduced by William Bengen. Over time, even Bengen himself has revised some of that research upward closer to 4.7% under certain assumptions.

Of course, rules of thumb only go so far.

Retirement spending capacity can vary dramatically depending on:

• Social Security income

• Pension income

• Tax planning

• Investment allocation

• Longevity assumptions

• Healthcare costs

• Spending flexibility

  
  

Beyond investment planning, many retirees benefit from thinking through:

• Desired retirement lifestyle

• Travel goals

• Housing plans

• Relocation possibilities

• Part-time work or consulting

• Hobbies and social engagement

  
  

A thoughtful lifestyle evaluation can help create greater confidence and purpose during retirement.

Final Thoughts

The five years before retirement often represent one of the most important planning windows of a person’s financial life.

During this period, many people have the opportunity to:

• Strengthen their financial foundation

• Improve tax efficiency

• Adjust investment risk

• Clarify retirement income strategies

• Prepare for healthcare and estate planning decisions

  
  

Retirement planning is about far more than simply reaching a certain account balance. It involves building a coordinated strategy designed to support both financial security and long-term peace of mind.

If you are approaching retirement and want to better understand how these decisions may affect your future, feel free to reach out to us here at SkyBlue Wealth Advisors. We specialize in helping clients navigate the waters of retirement planning and keeping their financial future on a steady course.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through TOP Private Wealth, a registered investment advisor and separate entity from LPL Financial.