Pre-Retirement Checklist: What to Do Within 5 Years of Retiring

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Older woman smiling and looking out a window
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Some of the most important decisions about retirement are made in the handful of years just before you stop working.

Use these last years in the workforce to set yourself up for a comfortable retirement on your own terms.

Here are several crucial steps to take in the last five years before you retire.

1. Estimate your spending

Stressed retiree doing budgeting and paying bills
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First, you’ll need a firm idea of how much you’ll need to live on.

Start by finding out what you currently are spending. This gives a rough idea of the income you’ll need in retirement.

Use these four simple steps to find your current spending, according to certified financial planner Jon Robertson, president of Abacus Planning Group in Columbia, South Carolina:

  1. Find your income on last year’s tax return.
  2. Subtract the taxes you paid.
  3. Note what you paid toward debt.
  4. Compare your bank balance with the same time a year ago.

Now, identify your spending. “For example, if you made $100,000, paid $20,000 in taxes, increased your bank account by $5,000 and decreased debt by $5,000, you probably spent around $70,000 last year,” Robertson says.

2. Calculate your monthly income stream

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Now that you know more or less what you’ll need, see what income you can count on each month in retirement.

Some examples:

  • Social Security: This Social Security Quick Calculator lets you estimate your monthly benefit checks. (Try entering various retirement dates to see how waiting or claiming earlier will affect your checks.)
  • Income from rental properties
  • An annuity
  • A work pension
  • Withdrawals from retirement savings. Money Talks News founder Stacy Johnson explains here how to estimate your monthly income from savings.

In these next five years, work to grow these income streams or add new ones — by deciding to buy a rental property, for example.

3. Decide how you’ll fill gaps or cope

senior bartender
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Compare your estimated annual income and current spending. If your spending promises to be more than your income, you can cut back spending or find ways to add income.

Some ideas:

  1. Save like crazy. Use these last five years to pour every cent possible into your retirement savings plan. If your employer matches a portion of your contributions, don’t miss that free money. Don’t have a 401(k)? Exploit the features of an IRA.
  2. Cut back. Many people retire on little to nothing more than their Social Security checks. If that’s your plan, here are “8 Tips To Retire Comfortably on Social Security Alone.”
  3. Plan a phased-in retirement. Increasingly, older Americans are creating hybrid retirements, in which they stop work, but then return to the workforce after time off — or collect retirement benefits while working part time. Some who are too young to claim Medicare keep working the minimum amount needed to keep their workplace medical coverage. Here are “20 Great Part-Time Jobs for Retirees.”
  4. Delay retirement. Keep working a while longer. Working from the comfort of your home makes it easier, in many cases, to prolong work and keep paychecks coming in. Here are “9 of the Best Remote Jobs for Retirees.”

4. Plan for Social Security

Social Security payments
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A lot of people sign up to collect Social Security as soon as they’re eligible. They aren’t going to work one more day, and that’s all there is to it.

However, one powerful variable under your control is when you first claim Social Security benefits. Waiting a few years to claim those checks lets the benefit amount grow.

Waiting isn’t for everyone. But since this decision locks in a large source of income for life, it’s worth finding out what’s at stake for you.

Writes Money Talks News founder Stacy Johnson:

“Taking your benefits at the earliest possible age, 62, will reduce them by 25% to 30% versus waiting until your full retirement age (between 65 and 67, depending on when you were born). Waiting until age 70 increases them by up to 8% annually for every year you wait after your full retirement age to claim.”

5. Create a tax strategy

Seniors working on taxes
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When work paychecks stop, there’ll probably be no more raises, bonuses or overtime pay for you. Retirement means living on what you’ve got and paying as little as necessary in taxes.

But tax planning can be complex. For example, do you know:

If not, consult a tax expert or learn to manage taxes for yourself to avoid overpaying.

6. Get moving to pay off the mortgage

Hand lifting small model home, revealing cash.
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As you plan your retirement income and expenses, one thing becomes clear: Unless you are enjoying a valuable tax deduction from it, eliminating your mortgage could be great.

Just think of what no mortgage payments could do for your cash flow. As Stacy points out, “If you’re paying 4% on your mortgage and earning 2% at the bank, you’re going backward by 2% per year.”

Many of us can’t afford to immediately pay off a home loan. But if you’ve been intending to enter retirement debt-free, get started now. Pick a payoff date and start putting every dollar possible toward your goal so you can burn the mortgage when you retire.

7. Plan to cover health care costs

Open enrollment for health insurance or Medicare
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Medicare is nothing short of fabulous. Ask any retiree. But it’s not free, and it doesn’t cover everything.

By one estimate, the average American couple who retired in 2023 at the age of 65 will spend $315,000 — out of pocket — on health care and medical costs in retirement. (It’s worth noting, however, that other estimates suggest this total is much lower in reality.)

Health care costs include deductibles, premiums and things Medicare doesn’t cover, such as prescription drugs, vision and dental care, hearing aids, home care and nursing homes.

Before you retire:

Get smarter with your money!

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