5 Moves to Make 5 Years Before Retirement

Dear Rich Lifer,

How do you make a situation stressful?  

You show up unprepared. 

If you’re approaching what’s called the “red zone” in retirement (5 years before retirement), there are some critical steps you need to take to make the transition stress free. 

For instance, do you know how much money you need to retire? Do you know what tax bracket you’ll fall in? Do you know where you’ll retire? 

Entering retirement without having answers to some or all of these questions can affect more than just your finances. 

Studies show that retirement increases the probability of depression by 40 percent. Sure, retirement might seem like a time for relaxation and care-free living, but if you’re not prepared it can be a time of stress and worry.  

If you’re approaching the red zone, or you’re in it now, here’s my advice on how you can best prepare for this next chapter in life.

1. Get Real With YOUR Numbers 

‘You should have at least $1 million saved before you retire.’ ‘You’ll need 80% of your pre-retirement income after you retire.’ 

The experts will throw all sorts of rules and milestones at you. However that advice is mostly generic and doesn’t factor in individual differences. 

Five years out from retirement is the perfect time for you to nail down YOUR numbers. Figure out how much you’ll actually need to retire and live the lifestyle you choose. 

Knowing how much you need to fund your retirement lifestyle will give you an idea of when you can actually retire. 

Try running a few different online retirement calculators and compare the results. You’ll start to see an accurate picture of what YOUR numbers look like. 

2. Figure Out Your Cash Flow

Switching from working and saving to withdrawing and spending in retirement can take some getting used to. Which is why it’s important you have a retirement withdrawal plan.

You need to know where your retirement income will come from, when, and how much from each source. This includes investments, as well as Social Security, pensions, minimum distributions and any other sources of income you might have. 

Asset allocation is another important topic you’ll need to educate yourself on. Diversifying your portfolio such that you maximize returns and minimize risk will be critical over the course of your golden years.

I recommend building at least a 1-2 year cash reserve in case of market downturns. By doing this you can avoid having to sell during a bear market in your first few years after retiring.

3. Figure Out Where You’ll Be Living

Now is the perfect time to figure out where you’ll live in retirement. Do you plan to age in place? Downsize? Move somewhere hot? Or have the best of both worlds? 

Over the next five years, travel to the cities you think you might like to retire. Rent a house for a week or two and see how you like the area. 

Explore your potential new digs and figure out if there are enough amenities and activities nearby to live out your golden years how you imagine. 

Also, if you’re planning to sell, start tracking real estate prices in your neighborhood and where you’re looking to buy. This will give you some numbers to work with in our first step. 

Once you’ve figured out where you’ll live, think about paying off your mortgage to lower your expenses. If you’re staying put and have a lot of equity in your home, you may want to consider a reverse mortgage.

4. Take Advantage of Catch-Up Contributions

A simple way to figure out if your retirement budget will work is try living off it in your final years of work. 

While you live on this more frugal budget, save and invest the difference. One of the best places to stash these savings is in your retirement savings accounts by taking advantage of catch-up contributions. 

What’s a catch-up contribution? 

A catch-up contribution is a type of retirement savings contribution that allows people aged 50 or older to make additional contributions to their 401(k) accounts and/or individual retirement accounts (IRAs). 

Catch-up contributions are typically larger than the standard contribution limit. For instance, in 2019 and 2020 the IRS limit on annual contributions to an IRA is $6,000 a year, while the catch-up contribution limit for individuals aged 50 and over remains at $1,000. 

For employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, along with the federal government’s Thrift Savings Plan, the catch-up rate is $6,500 for 2020 ($6,000 for 2019). Contributions for these plans are limited to $19,500 for 2020 ($19,000 for 2019).

Not everyone will be eligible for catch-up contributions, but if you qualify now is the time to take advantage. 

5. Finish Strong


When you’re close to retiring, it can be hard to focus at work. You’re probably at a point in your career where you’ve learned just about everything you can learn so it’s tempting to coast.

And with the finish line in sight, it might seem harmless. My advice: don’t coast. 

When you’re at work, work hard and seek out new opportunities to learn or pass on the knowledge you have. Because the last thing you want is to fumble the ball in the red zone and derail your retirement plan. 

Being exited from a job before you’re ready to retire can set you back years. You’ll be faced with having to find a new job or retire with less savings than you ideally would like.

Don’t let this happen. Finish strong and follow through with these five tips to ensure the next five years set you up for a great retirement.

To a richer life,

The Rich Life Roadmap Team


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