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4 Steps to Take Within 5 Years of Retirement

4 Steps to Take Within 5 Years of Retirement

May 01, 2023

The definition of a happy retirement is different for everyone. Perhaps it means shifting from a full-time job to meaningful part-time work. Or maybe it includes free time to spend with loved ones, gardening, or playing golf. Regardless of how you define it, the last five years leading up to retirement are crucial when it comes to planning. It’s at this time where you must decide whether you can afford to retire within this period. 

If you’ve made the right financial moves, you may only need to maintain your current plan and continue on your path toward retirement. However, if you’re unprepared, you might need to extend your timeline or make adjustments to your intended retirement lifestyle. As you near the home stretch, consider the following four steps created by our team to make yourself ready for those golden years just around the corner.

1. Think About Your Retirement Date

The beauty of retirement is that it’s finally all about you, including your values, priorities, and goals. And the good news is there’s no “right” time to retire. The best time to make the transition is the time you determine is ideal for you.  

If you’re thinking about retiring early, be sure to look at any potential consequences that may come with this choice. Ask yourself if you may be sacrificing your prime earning years and examine the impact this could have on your retirement savings. The sooner you retire, the longer your investments must last.

It’s also wise to think about Social Security and when you will draw on its benefits. If you start collecting as soon as possible at the age of 62, your benefits could be up to 30% less than they would be if you waited until age 67. Also be aware that you will not be eligible for Medicare until you turn 65. If you choose to retire before that age, you may need to purchase separate health insurance out of your own pocket, which will have an impact on your retirement savings.

On the flip side, there are many advantages that come from delaying retirement. Consider the fact that the longer you work, the more you can contribute to your retirement savings. This will postpone the need to tap into your nest egg, which ultimately lowers the chances of outliving your money. Also, waiting until full retirement to collect Social Security benefits may increase your future benefits. And if you decide to continue working for a company for additional years, you may have access to company-sponsored benefits such as healthcare, which will absolve you from needing to pay for this expense out of your own pocket.

2. Balancing Retirement Expenses

Failing to do a proper retirement-needs analysis is one reason many people find themselves struggling financially during their post-work life. To start mapping it out, first take some time to write down your actual expenses as they stand right now. Next, think about your future priorities and determine if your expenses will fluctuate up or down by the time you retire. As you obtain a realistic picture of how much money you’ll need for retirement, your analysis should take a holistic approach. This means considering all aspects of your finances, including items that could affect your cash flow and expenditures. 

A few things to think about as you analyze your situation:

  • Realize that some expenses will disappear, such as your mortgage and work-related costs.
  • Other expenses may rise, like healthcare.
  • Most Americans are automatically entitled to Medicare, but this likely won’t cover all your healthcare expenses.
  • Medicare does NOT pay for long-term care.
  • Remember to factor in the rising costs of inflation over time.

3. The Three-Legged Stool

The three-legged stool is a metaphor of stability. And because stability is something we all want to experience in retirement, it’s important to consider the three primary sources of income that most Americans rely on during retirement that support your future lifestyle:

  1. Social Security benefits
  2. Employer pension benefits
  3. Individual savings and investments

Legs 1 and 2 represent Social Security benefits and employer pensions and produce a steady stream of your retirement income. However, fewer employers are offering pension plans; because of this, many retirees rely on the third leg to play a major role in retirement funding. Leg 3 includes options like Traditional and Roth IRAs, 401(k)s, and any other investment or savings accounts.

It’s important to have an investment strategy that balances growth with your risk tolerance, considers the impact of current and future tax years, and aligns with your retirement goals. Discussing these things with your advisor is key to a successful retirement as they can tailor a strategy that matches your unique situation.

4. Making Your Retirement Dollars Count

You have worked long and hard to build your portfolio of retirement investments, and the most prudent approach involves making every dollar count in your favor. It’s important to convert those dollars into income while balancing things like risk tolerance, liquidity, anticipated rates of return, and any potential tax consequences. 

Have you thought about how your assets are allocated? This is the process of determining how much money to put into different types of investments. During your earning years, the proper strategy is almost always to focus on long-term growth. But at retirement, your asset allocation may shift toward producing steady income, lowering intermediate volatility, and keeping consistent annual returns.

It’s also important to consider your withdrawal rate once you hit retirement. This is the portion of your portfolio that you liquidate annually for your living expenses. Your withdrawal rate will require you to determine how much you need to withdraw each month/year without draining all of your retirement assets.

Finally, think about the order of withdrawal as you analyze your accounts. It’s imperative to consider the order in which you will access your retirement funds if you have multiple accounts, because the tax consequences for each will differ. These decisions could be also impacted by required minimum distributions (RMDs) that are associated with accounts like Traditional IRAs and 401(k)s.

Partner With a Professional

Of course, it’s always a good idea to review your retirement plan on a consistent basis. But the last five years before your intended retirement date may be the most important. That’s because things can change—whether it’s your job, family situation, or your own goals. At this point, you’ll know whether you’re on track and if retiring is still an option. 

At Heimensen Wealth Advisors, we strive to help our clients prepare in the most optimal way and stay on track as they pursue their retirement goals. Rather than doing it alone, we want you to experience the comfort and clarity a financial professional can bring to this process. To schedule an introductory meeting, call 712-472-3867 or email Be sure to check out my book, Stop Doing Dumb Things With Your Money, and tune into my new podcast, WIN—What’s Important Now.

About Corey

Corey Heimensen is owner and Accredited Investment Fiduciary® at Heimensen Wealth Advisors, a full-service financial planning and investment management firm serving pre-retirees, independent contractors, small business owners, and young families. With 30 years of experience, Corey believes that future success in life means that you have to conquer today, and he equips his clients to do just that through education, guidance, and customized strategies. Corey’s goal is to do his part to make his clients’ lives better, taking some of the financial burden off their shoulders so they can focus on what matters most to them. 

Corey is the author of Stop Doing Dumb Things With Your Money, and host of his new podcast, WIN—What’s Important Now, where he discusses planning strategies you can utilize now to help you build a financial path for tomorrow. Corey earned a degree in finance from Buena Vista University and resides in Rock Rapids, Iowa, with his wife and three children. When he’s not building his firm and working with clients, you can find Corey boating, reading, and attending sporting events. He loves anything related to basketball! To learn more about Corey, connect with him on LinkedIn and subscribe to his podcast.

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Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.