I recently had the opportunity to give a retirement seminar to a group of hospital employees here locally. We spent time talking through what I believe are the five most important things people should focus on in the five years before retirement.
One thing I mentioned during the talk is that some people spend more time planning their vacation than they do planning their retirement.
And don’t get me wrong, I do love me a good vacation. My family is actually getting ready to head out to Yellowstone and the Grand Tetons this summer, and we’re really looking forward to it.
But the fact of the matter is this: That vacation may last a couple weeks.
Retirement will likely last three or four decades.
And so getting the lead-up right before retirement is critical if you want to launch into a meaningful, joyful, and confident retirement.
Here are the five things I believe you must do in the five years before you retire.
1. Know Your Numbers
The first thing you need to do before retirement is know your numbers.
And the first step in knowing your numbers is tracking your expenses.
I generally encourage people to track at least a year’s worth of expenses before retirement. The reason I say a year is because it catches those annual expenses people tend to forget about. Taxes. Insurance. Vehicle registration. Christmas spending. Home maintenance. Vacation costs. All the things that may not happen monthly, but still absolutely count.
The truth is that a lot of people have a rough idea of what they spend. Very few people actually know.
Now there are multiple ways to track expenses. Some people like apps that automatically sync transactions. Others prefer spreadsheets or even old-school ledger-style tracking.
Honestly, I don’t care much which method you use. I care that you know your numbers.
Because once you know your current expenses, you can start adjusting for retirement. Maybe you drove 30 minutes each way to work every day and now those commuting expenses disappear. Maybe healthcare costs go up. Maybe travel spending goes up during the early years of retirement.
But until you know your baseline, you’re mostly guessing.
Another big part of knowing your numbers is consolidating investments whenever practical.
I can’t tell you how common it is for somebody to walk into my office with investments spread across 10 or 12 different places. Old 401(k)s from previous jobs. An IRA somewhere else. An investment account at the bank. Maybe an old annuity they forgot about years ago.
And while in theory they maybe know all their numbers, everything changes when you can actually see it all in one place.
It becomes easier to track. Easier to forecast income. Easier to understand risk. And often easier to reduce costs as well.
The last piece of knowing your numbers is identifying your income sources.
- Social Security
- Pensions
- Retirement accounts
- Brokerage accounts
- Rental income
- Part-time work
If you know your expenses and you know your income, you’ve already made a huge step toward retirement confidence.
2. Eliminate or Minimize Debt
Retirement is largely a cash flow game: What income is coming in? What expenses are going out?
And every dollar going toward debt payments reduces your flexibility in retirement.
That’s why I generally encourage people to aggressively target consumer debt in the years leading up to retirement. Vehicle loans, credit cards, personal loans, medical debt, boats, campers, whatever it may be.
You do not want those things hanging over your head in retirement.
Now another thing I encourage people to think through is future purchases.
For example, many people like to buy a nicer vehicle right before retirement with the idea that it may be the last vehicle they ever purchase. That’s completely fine. But you want to plan for it intentionally instead of waking up in retirement with a new payment you didn’t fully think through.
Now when it comes to mortgage debt, my approach is a little different than some people.
A lot of people nearing retirement want to throw every extra dollar directly toward paying off the mortgage. And while I absolutely understand the desire to enter retirement debt-free, I generally prefer building up a side account first.
Here’s what I mean.
Let’s say somebody has $50,000 left on their mortgage and they’ve got extra monthly cash flow. Instead of sending every extra dollar directly toward the mortgage, I often prefer putting that money into a separate high-yield savings or money market account while continuing regular mortgage payments.
Why? Flexibility.
Because once extra money goes toward the mortgage, it’s tied up in home equity.
But if life happens, medical expenses happen, job changes happen, or opportunities arise, that side account gives you options.
Then once the side account exceeds the remaining mortgage balance, you can always pay it off in one shot.
I’ve always believed good financial planning is largely about maximizing flexibility.
And this is one way to do that.
I also think it’s worth mentioning that many people talk about “downsizing” in retirement.
But in my experience, many people downsize square footage without actually downsizing spending. The home may be smaller, but it’s newer, nicer, or in a more expensive area, and they end up spending roughly the same amount anyway.
That doesn’t make it wrong. It just means those decisions should be made intentionally.
3. Define Your Next Chapter
Honestly, this may be the most important step of all.
Most people spend 40 or 50 years working.
And while none of us are fully defined by our jobs, the reality is that work shapes our schedule, relationships, routines, friendships, and sense of purpose.
Then one day it suddenly stops… That’s a major life transition whether people acknowledge it or not.
One of the biggest mistakes people make is waiting until retirement to figure out what retirement is actually going to look like.
You need to start building that next chapter before retirement begins. If you want to volunteer in retirement, start volunteering now. If you want hobbies in retirement, start developing them now. If you want strong friendships after retirement, start intentionally maintaining those relationships now.
Because relationships are built around shared time.
Right now, many of your relationships are naturally maintained through work. Once work goes away, maintaining those relationships takes more intentionality.
I also think people underestimate how valuable part-time work can be during the transition into retirement.
Now before you roll your eyes and say, “Tyler, the whole point of retirement is not working,” hear me out.
I’m not talking about grinding out 50-hour work weeks forever.
But for many people, a gradual transition into retirement can be really healthy. Maybe it’s consulting. Maybe it’s seasonal work. Maybe it’s part-time work a couple days a week.
It softens the financial adjustment. It softens the relational adjustment. And honestly, for many people, it softens the emotional adjustment too.
For a lot of people, retirement works better as a gradual transition than a full-speed collision into stopping altogether.
4. Make a Retirement Plan
“A goal without a plan is just a wish.” -Antoine de Saint-Exupéry
Everybody wants a good retirement. But wanting one and planning for one are two very different things.
A real retirement plan should answer questions like:
- What are my expected expenses?
- Where will my income come from?
- How should investments be structured?
- What is my tax strategy?
- How do I manage risk?
- What happens if markets struggle early in retirement?
- How do healthcare and long-term care fit into the picture?
And yes, taxes matter.
Look, I don’t want to cheat on taxes. But I also don’t want to pay one dollar more than necessary. If you want to tip somebody, tip a server, not the IRS. Good retirement planning includes tax planning, not just investment planning.
I also think it helps people to understand that retirement usually happens in phases.
You’ve probably heard them called:
- The go-go years
- The slow-go years
- The no-go years
The go-go years are the early retirement years. Energy is high. Travel is common. Spending is often elevated. The slow-go years are when life begins to slow down a bit. People stay closer to home. Spending often declines somewhat. Then come the no-go years, where healthcare and long-term care costs often become more significant.
A good retirement plan accounts for all three phases rather than assuming retirement spending stays perfectly flat forever.
And one quick note on Social Security because this confuses a lot of people:
Your retirement date and your Social Security filing date are not the same decision. You do not automatically have to start Social Security the day you retire. For some people it makes sense to start early. For others, delaying benefits can create significantly more lifetime income.
Those decisions should be made intentionally rather than automatically.
5. Protect Your Plan
A retirement plan is only valuable if it can survive the risks that threaten it.
Healthcare is obviously one of the biggest concerns, especially for people retiring before Medicare begins at age 65.
And no retirement plan is complete without addressing long-term care in some fashion. Whether that’s insurance, self-funding, or some combination, you at least need to have a plan. Because pretending it doesn’t exist is not a strategy.
The last thing I talked about during the seminar was fraud. And unfortunately, fraud is getting more sophisticated every single year. The scams that exist today are dramatically more advanced than what existed even 10 years ago, and artificial intelligence is only accelerating that trend.
The reality is that many intelligent people fall victim to scams because scammers understand emotion moves people better than logic.
That’s why I believe it’s incredibly important to have a trusted person you can bounce things off of. A financial advisor. An accountant. An attorney. An adult child. A trusted friend. Somebody who is not emotionally involved in the situation.
Because while many scams sound ridiculous today, whatever version of those scams exists 20 years from now may not feel nearly as obvious.
Final Thoughts
Retirement is about far more than simply hitting a number in an investment account. It’s about building a life you actually enjoy living.
And in many cases, the five years leading up to retirement are what determine whether that transition is smooth or stressful.
If you can:
- Know your numbers
- Eliminate or minimize debt
- Define your next chapter
- Make a retirement plan
- Protect your plan
…you give yourself a much better chance at creating the kind of retirement most people actually want.
Not just financially secure. But meaningful, flexible, fulfilling, abundant.
This post is for education and entertainment purposes only. Nothing should be construed as investment, tax, or legal advice.