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If You Are Close to Retirement, Here Are Five Steps You Must Take Now.

Updated: Feb 9, 2022

There's one sure way to make an event stressful: Head into it unprepared. If you’re within five years of retirement, don’t procrastinate. Five years may seem like a long time, but it goes quickly. Research shows that those who start planning at least five years out have a happier retirement.

According to, there is nothing to lose and much to gain by taking the following five short-term retirement-planning steps as soon as possible.

Increase Cash Reserves

Applying for pensions and Social Security, and setting up withdrawals from IRAs and 401(k) plans takes time and paperwork. Things can be delayed, and you might not get your first pension check on time, so you'll want to be prepared for a potential glitch or two along the way.

Prepare for delays by having extra cash reserves ready in safe investments: things such as savings, checking, and money market accounts. The amount to tuck away is anywhere from three to six months' worth of living expenses.

Estimate How Much Money You'll Need To Retire

To decide whether you have enough to retire, you must develop an accurate estimate of the amount of money you spend and the amount of income you will have each month. This is the most important retirement-planning step you can take.

Write down your current take-home pay and your current monthly expenses. Also note variable costs such as hobbies, home improvements, and vehicle repairs.

Now write down the monthly income that will be available from pensions, Social Security, and IRA or 401(k) withdrawals. Is this number close to your current take-home pay? If not, you have four options: spend less in retirement, save more now, work a few extra years, or earn a higher rate of return on your investments.

One important step in this process that is often overlooked is establishing a planning horizon, or the number of years you feel you'll need to fund your retirement, and factoring in the impact of inflation over those years. If you're not great at doing these calculations on your own, search for a qualified financial advisor to help. Retirement is, hopefully, something you'll only do once, so seeking professional help is perfectly fine.

Evaluate Tax Consequences

If you think you might be in a lower tax bracket in a few years, you'll want to be sure to maximize tax-deductible contributions now. Are you thinking about moving? Up to $500,000 if you're married ($250,000 if you're single) of capital gains from the sale of your home may be tax-free (subject to applicable IRS regulations).1

Do you have company stock that needs to be diversified? Plan for the amount of tax that you'll owe the year you sell the stock, or spread the sale over several calendar years.

Diversify Your Investments

Watching your portfolio go up then back down is never enjoyable; but in the end, as long as you end up with enough money, it doesn’t matter how you got there.

Once you are retired, however, it’s a different story. When you are taking regular withdrawals from a portfolio, volatility has a much greater impact. It is something retirement planners call "sequence risk." Reducing the ups and downs can significantly increase the odds that your money will last through your life expectancy.

Spend time figuring out what mix of investments will achieve the rate of return you need while having a level of risk that is reasonable for you. The risk-to-return characteristics of your portfolio will influence how much income you will have and how long it will last.

Educate Yourself

Although it is advisable to seek professional guidance, the truth is that no one will ever care about your money as much as you do. Take the time to learn about retirement planning and investing.

You'll want to learn about investing approaches that affect the distribution phase in retirement, as it is quite different from the accumulation phase. Approach your planning with an open mind and with the goal of making sure your income is secure. That will lead you to make more appropriate choices than focusing only on getting the highest rate of return.

Some suggestions: attend an investment class at the local community college, take an online investment class, read books, and use the internet to learn. You spent a significant amount of your life earning that money. Now it’s time to learn how it can work for you.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. Longleaf Wealth Management Group, LLC and LPL Financial are separate entities.



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