Five Years from Retirement: The 5 Key Steps You Need to Take Now

This article is designed to guide you through the critical steps you need to take in the next five years, covering everything from financial readiness to lifestyle adjustments and legacy planning. By addressing these key areas now, you can set the stage for a fulfilling and secure retirement.

1: Assessing Financial Readiness
The first step in preparing for retirement is to take a hard look at your financial situation. With only five years to go, it’s essential to ensure that your retirement savings are on track. Start by reviewing your 401K, IRA, and any other retirement accounts. Are you contributing enough to meet your retirement goals? This is also the time to consider whether your investment strategy aligns with your risk tolerance as you near retirement age. For some, this might mean reducing risk in your portfolio to protect against market volatility.

Budgeting for retirement is another crucial aspect of financial readiness. Begin by estimating your retirement income and expenses. This includes everything from daily living costs to potential healthcare expenses and taxes. Don’t forget to factor in inflation, which can erode your purchasing power over time. If you find that your savings might fall short, now is the time to adjust – whether it’s ramping up your savings, reducing expenses, or considering part-time work in retirement.

Lastly, address any outstanding debt. Carrying debt into retirement can be a significant burden, especially when your income may be more limited. Prioritize paying off high-interest debt and consider strategies to manage any remaining obligations. Reducing or eliminating debt before retirement will give you greater financial freedom and peace of mind.

2: Planning for Healthcare Needs
Healthcare is one of the most critical and often underestimated aspects of retirement planning. As you approach retirement, it’s important to understand your healthcare options, starting with Medicare. Medicare eligibility begins at age 65, and the choices you make during the enrollment period will affect your healthcare coverage and costs for years to come. Take the time to learn about the different parts of Medicare – and determine whether you’ll need supplemental insurance to cover what Medicare doesn’t.

In addition to Medicare, consider whether long-term care insurance or trust planning might be necessary. The costs of long-term care, whether in a nursing home, assisted living facility, or in-home care, can be substantial and are not covered by Medicare. Purchasing a long-term care policy now or moving your assets into an irrevocable trust can provide protection and ensure you receive the care you need without depleting your savings.

Proactively managing your health is also key to enjoying a long and active retirement. Now is the time to establish or maintain healthy habits, such as regular exercise, a balanced diet, and routine health screenings. These habits not only improve your quality of life but can also help reduce healthcare costs down the line. A healthy lifestyle now can lead to fewer medical issues and more opportunities to enjoy your retirement to the fullest.

3: Lifestyle and Emotional Preparation
Retirement isn’t just a financial shift; it’s a major lifestyle change that requires emotional preparation. As you near retirement, start visualizing what you want your day-to-day life to look like. Whether you dream of traveling the world, spending more time with family, pursuing hobbies, or volunteering, now is the time to make plans. Consider how you’ll fill the hours that were once occupied by work and start experimenting with these activities in your free time.

Social connections are another critical component of a happy retirement. The transition from a work-centered life to retirement can sometimes lead to social isolation, particularly if your social circle was largely connected to your job. Begin fostering relationships outside of work now – join clubs, take classes, or engage in community activities. A strong social network will provide emotional support and enrich your retirement experience.

The psychological adjustment to retirement should not be underestimated. Many retirees struggle with the loss of identity and purpose that can come with leaving the workforce. Preparing for this emotional shift involves more than just planning activities; it’s about redefining your sense of self. Some find fulfillment in part-time work, consulting, or volunteering, while others may dive into new passions. Whatever path you choose, it’s important to recognize that this is a time of personal growth and to approach it with an open mind.

4: Estate Planning and Legacy
As you prepare for retirement, it’s essential to ensure that your estate plan is up to date and reflects your current wishes. This includes reviewing and possibly revising your will, trusts, and beneficiary designations. Life changes – such as marriages, divorces, or the birth of grandchildren – can all necessitate updates to your estate plan. Additionally, consider whether you need to establish or adjust any trusts to manage your assets effectively and minimize taxes.

Designating a power of attorney for finances and a healthcare proxy is another critical step. A power of attorney ensures that someone you trust can make decisions on your behalf if you become unable to do so. This not only protects your interests but also provides peace of mind for your loved ones, knowing that they won’t have to navigate complex legal processes during a challenging time.

Finally, think about the legacy you want to leave behind. Legacy planning isn’t just about money; it’s about the impact you want to have on your family, community, and the world. Whether it’s setting up a family foundation, supporting causes you care about, or passing down family traditions and values, your legacy is a powerful way to shape the future. Begin discussing these plans with your loved ones now, so they understand your wishes and can carry on your legacy in a way that’s meaningful to you.

5: Creating a Retirement Timeline
One of the most effective ways to ensure a smooth transition into retirement is to create a detailed timeline that outlines the key actions you need to take each year leading up to your retirement. This timeline will serve as a roadmap, helping you stay on track and avoid last-minute stress. Start by identifying the major milestones – such as when to downsize your home, when to apply for Social Security benefits, and when to make final decisions about your healthcare coverage.

In the first year, focus on reviewing your current financial situation and identifying any gaps in your retirement savings. Years two and three might involve meeting with a financial advisor, adjusting your investment strategy, and paying off any remaining debt. In the final two years, you’ll want to finalize your healthcare plans, update your estate planning documents, and begin the emotional and lifestyle preparation for retirement. Having a clear, year-by-year plan will not only help you feel more confident as you approach retirement but will also ensure that you’re taking full advantage of the time you have left to prepare.

A well-structured timeline also allows you to break down the often-overwhelming process of retirement planning into manageable steps. Instead of trying to tackle everything at once, you can focus on one key area each year, making the transition into retirement smoother and more organized. This approach helps to minimize the risk of missing important deadlines, such as the Medicare enrollment period or the optimal time to claim Social Security benefits. By spreading out these tasks, you can approach retirement with a sense of control and readiness.

Wrap Up
Preparing for retirement involves taking thoughtful, strategic steps to ensure you’re ready for the next phase of life. With five years to go, focusing on these five key areas – financial readiness, healthcare planning, lifestyle and emotional preparation, estate planning, and creating a retirement timeline – will set you up for a successful and fulfilling retirement. By breaking down the process into these actionable steps, you can approach your retirement with confidence and peace of mind, knowing that you’ve covered all the bases.

This content is provided for educational purposes only and should not be used as the basis for making an investment or financial decision. Strategic Financial Services offers advice and recommendations tailored to the specific needs and circumstances of each client. Nothing in this content should be construed as legal or tax advice; these services should be obtained from certified tax professionals or licensed attorneys.

All investments carry risk, including the potential loss of principal. Strategic Financial Services is a registered investment advisor; registration does not imply a certain level of skill or training.