18 Essential Financial Steps to Take 5 Years Before You Retire

Julie Ann - June 10, 2025

As retirement draws closer, proactive financial planning becomes more important than ever. The five-year mark before you retire is a critical window—an ideal time to review your finances, adjust your strategies, and address any gaps in your plan. Taking key steps now can help solidify your future income, reduce the risk of unexpected expenses, and set the stage for a smooth, stress-free transition into retirement. With the right approach, you can look forward to this exciting new phase with confidence and clarity.

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1. Reevaluate Your Retirement Budget

Neatly organized spreadsheet on a laptop — A neatly organized spreadsheet on a laptop sits beside a calculator, ready for a productive budget planning session. | Image source: Photo by Artem Podrez on Pexels

Begin by carefully estimating your post-retirement expenses, factoring in essentials like healthcare, housing, travel, and leisure. Your spending habits may shift as your lifestyle changes, so review your current budget and make thoughtful adjustments. Utilize online budgeting tools or work with a financial planner to gain a clearer picture of your future needs. This reassessment can help you avoid unwelcome surprises and ensure your finances are aligned with your retirement goals.

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2. Maximize Retirement Account Contributions

A pink piggy bank sits beside an upward trending investment chart — Image source: Photo by Alex P on Pexels

With five years to go, now is the time to supercharge your retirement savings by taking advantage of catch-up contributions in your 401(k) and IRA accounts. If you’re over 50, you can contribute more than the standard limit, which can greatly enhance your nest egg through the power of compounding. Review your available options and be sure to check IRS guidelines for the latest contribution limits. Increasing your savings now can provide greater flexibility and security when you retire.

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3. Assess Social Security Strategies

Take time to review your Social Security benefits and determine the optimal age to start claiming. Delaying benefits can lead to higher monthly payments, but the right choice depends on your health, income needs, and overall retirement plan. Explore different scenarios using the Social Security Administration’s calculators. Careful planning now can help you maximize your lifetime benefits and make informed decisions about your retirement income.

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4. Evaluate Pension and Annuity Options

Pension statement and annuity contract rest side by side — Image source: Photo by SHVETS production on Pexels

If you’re eligible for a pension, review your options—whether to take a lump sum or monthly payments. Consider purchasing annuities to create guaranteed income during retirement. Weigh the pros and cons of each approach, factoring in your long-term needs and risk tolerance. For a deeper dive, explore AARP’s annuity guide. Making informed decisions here can help ensure a stable and predictable income stream for your retirement years.

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5. Review and Consolidate Accounts

Start by listing all your retirement and investment accounts to get a clear overview. Consolidating old 401(k)s or IRAs into fewer accounts can simplify your financial management and may help reduce fees. Compare your options carefully and consult trusted resources for guidance on account types and best practices. Streamlining your accounts now will make tracking your retirement savings much easier.

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6. Eliminate High-Interest Debt

Paying off credit cards and high-interest loans before retiring can significantly ease your financial burden and lower stress in retirement. If you’re struggling with multiple debts, consider consolidation as a strategy to streamline payments. For actionable tips and resources, visit the Federal Trade Commission’s debt management page. Entering retirement debt-free will give you more flexibility and peace of mind.

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7. Plan for Healthcare Costs

Healthcare expenses can be substantial in retirement, so it’s wise to estimate your future needs now. Consider premiums, deductibles, out-of-pocket costs, and the possibility of long-term care. Review your options for Medicare and explore supplemental insurance plans to fill potential gaps. If you have a Health Savings Account (HSA), it can provide tax-advantaged funds for medical expenses. For comprehensive details, visit the official Medicare site. Proactive planning helps you avoid financial surprises and ensures you get the care you need.

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8. Update Estate Planning Documents

Now is the time to review your will, power of attorney, and healthcare directives to ensure they reflect your current wishes. Double-check that beneficiaries are accurate on all accounts, including retirement and insurance policies. If your situation is complex, consider meeting with an estate planning attorney for expert guidance. For helpful tips and checklists, consult the American Bar Association’s estate planning resources. Keeping these documents current protects your legacy and your loved ones.

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9. Consider Downsizing or Relocating

Smiling retired couple stands in their new home, surrounded by stacks of moving boxes and fresh beginnings — A smiling retired couple stands in their new home, surrounded by stacks of moving boxes and fresh beginnings. | Image source: iStock

Assess if your current home aligns with your retirement plans and financial goals. Downsizing or relocating to a more affordable area can reduce your expenses and potentially unlock extra cash for your nest egg. Think about your desired lifestyle, proximity to family, and healthcare access when making this decision. For help comparing locations and expenses, try cost-of-living calculators and relocation guides from Kiplinger. A move now could set you up for greater comfort and flexibility in retirement.

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10. Review Insurance Coverage

Take time to review all your insurance policies, including health, life, home, and auto coverage. As your lifestyle changes, your insurance needs may shift as well—adjust your policies to avoid gaps or unnecessary costs. Make sure your coverage matches your current and future circumstances. For guidance on evaluating and updating your insurance, explore resources from the National Association of Insurance Commissioners. Regular reviews can help safeguard your finances and peace of mind.

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11. Create an Emergency Fund

Building a robust emergency fund is essential as you approach retirement. Aim to set aside six to twelve months’ worth of living expenses in a readily accessible account. This financial cushion can help you weather unexpected costs without dipping into your retirement savings, especially during market downturns. A solid reserve provides security and peace of mind in uncertain times.

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12. Estimate Required Minimum Distributions (RMDs)

As you near retirement, it’s vital to understand your Required Minimum Distributions (RMDs) for traditional IRAs and 401(k)s. Know when you must begin withdrawals and calculate the amounts to avoid costly penalties. Strategically planning your RMDs can help you manage your taxable income and maintain financial stability. Smart RMD planning supports a sustainable and tax-efficient retirement.

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13. Test Drive Your Retirement Income

Give yourself a realistic preview by living on your anticipated retirement income for several months before you actually retire. This trial run can highlight budget gaps, unexpected expenses, or areas where you can comfortably cut back. Making adjustments now—while you still have time to refine your plan—ensures a smoother transition when the big day arrives. For more practical advice on retirement income planning, check out The Balance’s retirement budget guide.

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14. Meet with a Financial Advisor

Scheduling time with a certified financial planner can make a world of difference as you approach retirement. An advisor provides tailored guidance for optimizing investments, managing income streams, and refining your tax strategy. They can also help you avoid costly mistakes and adjust your plan as market conditions or personal goals change. To find a qualified professional near you, use the CFP Board’s directory and start building your retirement team.

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15. Review Tax Strategies

As retirement nears, strategic tax planning becomes increasingly important. Consider moves like Roth conversions, which may reduce future taxable income, or harvesting capital losses to offset gains. Review how various income sources—Social Security, pensions, and withdrawals—will affect your tax situation. Careful planning now can help you keep more of your hard-earned savings. For further guidance, explore the IRS Retirement Topics page and consult with a tax professional.

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16. Plan for Long-Term Care

Long-term care can be a major financial concern in retirement, so it’s wise to explore your options early. Consider whether long-term care insurance or other funding strategies are right for you, as these can help cover expenses for nursing homes, assisted living, or in-home care. Starting this research now gives you more choices and potentially lower premiums. For a comprehensive overview and planning resources, visit the U.S. Department of Health & Human Services long-term care guide.

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17. Organize Important Documents

Gather and secure your essential documents—including financial statements, insurance policies, wills, and identification—in one accessible, safe location. Let trusted family members or friends know where to find them in case of emergency. Staying organized will help you and your loved ones manage unexpected situations smoothly. For a detailed checklist of what to include, visit the National Institute on Aging’s guide on getting your affairs in order.

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18. Clarify Your Retirement Vision

Take time to reflect on your ideal retirement lifestyle—whether it’s traveling, volunteering, starting a hobby, or spending more time with family. Defining your vision will help shape your financial priorities and guide your planning decisions. A clear sense of purpose ensures your retirement plan truly supports your aspirations. For ideas and resources to help you imagine what’s possible, explore AARP’s retirement planning section and let your dreams lead the way.

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Conclusion

By thoughtfully addressing these 18 essential financial steps, you set the stage for a retirement that’s both secure and rewarding. Proactive planning—from budgeting and debt reduction to healthcare, tax strategies, and clarifying your goals—gives you greater control and peace of mind.
Take the time now to review your plans, consult experts where needed, and make adjustments so you can fully enjoy your next chapter. Your future self will thank you for the confidence and freedom your preparation brings.

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