Do These 5 Things If You Want to Retire in the Next 5 Years
Retirement is not a switch you flip one day.
The best results come from preparing years in advance.
In this article, I outline five practical steps to take if you expect to retire within the next five years.
Step 1: Decide how work fits in
When you retire will you stop working for good, continue part-time, or start a side hustle?
Working in retirement can give you extra cash, purpose, and routine.
But, if you plan to work while receiving Social Security, you need to know the income limits.
If you are younger than full retirement age, Social Security reduces your benefit if you earn above a set yearly limit.
In 2025, the limit is $23,400. If you earn more, Social Security withholds $1 for every $2 above the limit.
The year you reach full retirement age, a higher limit applies and the reduction is $1 for every $3.
Once you reach full retirement age, there is no income limit.
Steps to take:
1. Decide the month and year you plan to retire (an estimate is ok).
2. Make a backup plan in case you stop working earlier than expected.
3. Decide if you will stop working, go part-time, or start a small business.
4. If you plan to work part-time, estimate your monthly income.
5. Review the rules on working while collecting Social Security.
Step 2: Create your income plan
Retirement income does not all come from one place.
Knowing how much you will need and where it will come from gives you control.
Most people think they need 70 to 80 percent of their work income, but new research shows the number depends on how much you earn.
J.P. Morgan studied real spending data from retirees. Here is what they found:
If you earned $30,000, you need about 98% of that in retirement.
If you earned $50,000, you need about 91%.
If you earned $100,000, you need about 86%.
If you earned $200,000, you need about 79%.
If you earned $300,000, you need about 72%.
Where does this money come from?
Lower earners ($30,000 income) get 74% from Social Security and 26% from savings.
Middle earners ($100,000 income) get 45% from Social Security and 55% from savings and investments.
Higher earners ($300,000 income) get only 22% from Social Security and 78% from savings and investments.
Steps to take:
1. Look at your last year of work income. Multiply by the percentage from above to see how much income you may need in retirement.
2. List your expected Social Security benefit. Use the estimate on your Social Security statement.
3. Subtract that number from your target income. The gap is what you need from savings and investments.
4. Compare your savings to the gap using a safe withdrawal guideline. The 4% rule is a common starting point, but today’s research suggests closer to 3.5% for safety.
Example: If you have $500,000 saved, 3.5% gives you $17,500 per year.
5. If the numbers don’t work, take action now. You have four options:
Save more while you are still working.
Adjust your investments.
Delay retirement.
Reduce your planned spending.
6. If you earn less than $100k per year, focus on working at least 35 years and delaying Social Security until 70, if possible.
Step 3: Keep saving
You are in the final stretch before retirement, which means you do not have decades for your money to grow anymore.
The dollars you save now will not double several times like they would if you were 30. This makes each contribution more important.
Even small increases in savings now can make a difference when combined with smart investment choices.
For example, if you save $500 per month for the next 5 years, that adds up to $30,000 in contributions. With modest growth, you could retire with more than $35,000 extra set aside.
Now look further ahead.
If you leave that $35,000 invested in a retirement account and let it grow for another 20 years at a 6% annual return, it could grow to about $112,000.
That is more than triple the amount you originally set aside.
This is why even late-stage saving is worth it. Your money does not stop working when you retire. It can keep growing in your accounts for decades.
(Note: Amounts shown for educational purposes. Not a guarantee of performance).
Steps to take:
1. Max out your 401(k) or IRA each year. In 2025, you can save up to $23,500 in a 401(k) plus $7,500 catch-up if you are over 50.
2. If you have a Roth IRA, you can save $7,000 plus $1,000 catch-up.
3. Put extra money in a taxable account once you fill these limits.
4. Automate your savings so money moves right after payday.
Step 4: Plan for healthcare
Healthcare will likely be one of your largest expenses in retirement.
Medicare starts at age 65, but it does not cover everything. You may face premiums, deductibles, co-pays, and gaps in coverage such as dental, vision, and long-term care.
If you retire before 65, you will need to bridge the gap with employer coverage, COBRA, or a plan from the health insurance marketplace.
Even after 65, most retirees choose a Medicare Advantage plan or a Medicare Supplement plan to reduce out-of-pocket costs.
Steps to take:
1. If you retire before 65, learn your health insurance choices. Check COBRA, ACA marketplace plans, or a spouse’s plan.
2. At 65, sign up for Medicare. Compare Part A, Part B, and Part D costs.
3. Decide if you want a Medicare Advantage plan or a Medigap plan.
4. Build healthcare premiums and out-of-pocket costs into your retirement budget.
Step 5: Prepare for taxes
Taxes do not stop when you retire. Bummer, I know.
Every withdrawal from your accounts can be taxed differently depending on where the money comes from.
Money from traditional 401(k)s and IRAs is taxed as ordinary income.
Withdrawals from Roth accounts are tax-free if the rules are met.
Money from taxable brokerage accounts may be taxed at lower capital gains rates.
Social Security benefits can also be taxed if your income is above certain levels.
This mix of rules affects how much of your savings you actually keep each year.
Planning ahead helps you decide which accounts to draw from first, how to lower your tax bill, and how to stretch your money further.
Steps to take:
1. List your accounts: pre-tax (401k, traditional IRA), Roth accounts, and taxable accounts.
2. Know that pre-tax accounts are taxed when you withdraw. Roth accounts are tax-free. Taxable accounts are partly taxed.
3. Meet with a tax planner to build a withdrawal order. Often, mixing withdrawals keeps your tax bill lower.
4. If you are between 59½ and 73, think about Roth conversions before RMDs begin. This can lower future taxes.
An urgent message for anyone planning to retire in the next 5 years
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