Retirement Planning
The Five Years Before Retirement: What Has to Happen, and In What Order?
The five years before the last paycheck decide more than the thirty before them. Here's what has to happen in that window, in order, and what an advisor is actually for during it.
Short Answer
A financial advisor for pre-retirees works one specific window: roughly the five years before your last paycheck. Those years decide more than the thirty before them, because that's when the irreversible decisions get shaped: how savings become a monthly paycheck, what your tax window looks like before required distributions, when each spouse claims Social Security, how a pension gets elected, how health coverage works before Medicare, and whether your portfolio is still positioned for a paycheck you'll no longer receive. If retirement is within about five years, this window is open now. It closes on your last day of work, and there's no taper.
A man on an explore call this year put the whole thing better than any brochure could. Can I retire? Because if it isn't realistic, I'll complain for the next five years and keep working. That's the honesty this window deserves: a real answer, from real numbers, while there's still time to act on it.
The reason the answer has to come early is simple: almost everything that goes wrong in early retirement was decided, or left undecided, in the five years before it.
The Handoff Years
For thirty years, good financial behavior was one repeated decision: save, invest, don't flinch in bad markets, repeat. It worked precisely because it required so few choices. Then, somewhere around five years out, the game changes shape entirely, and nobody sends a memo.
Suddenly the decisions are all different from each other, they interact, and several are one-way doors. The pension election is permanent. Social Security claiming can only be undone briefly and awkwardly. The low-tax window between the last paycheck and required distributions, which currently begin at 73 for most people (IRS: required minimum distributions FAQs), either gets used or expires. A bad market in the two years around retirement does damage that the same market ten years earlier wouldn't, which is why the risk that matters now is sequence, meaning the order the returns arrive in rather than their average.
Picture a hypothetical Johnson City couple, 58 and 57, planning to be done at 62. They're diligent savers with no plan beyond the saving. Nothing is wrong yet. But every question that'll define their retirement is already on the table, and each one gets cheaper to answer the earlier it's asked.
Thirty years of one decision becomes a sequence on a deadline
The Five-Year Window, In Sequence
This is the order we work with pre-retiree households. Each step makes the next one cheaper.
Five Years Out: Get The Real Number And Reset The Risk
Start with spending, from real statements. A figure rounded to something comfortable won't survive the first year. That produces the real question: not do we have enough in general, but does this portfolio, plus Social Security and any pension, fund this life. At the same time, look hard at risk. The years just before and after retirement are where a bad market does the most damage, because withdrawals turn losses permanent. This is when the portfolio gets its next job description, and the accumulation-era one stops applying. Our page on whether you can retire before 65 covers the early-retirement version of this math.
Three To Four Years Out: Map The Tax Window
Retirement usually opens the lowest-tax years of your adult life, between the last paycheck and required distributions. Mapped early, that window can fund Roth conversions at rates that may never repeat, and in Tennessee the state adds nothing on top. Mapped late, it's just years that went by. The map also answers practical questions: which account the first retirement dollars come from, and what income should look like in the checkpoint years that decide Medicare surcharges and health subsidies.
Two To Three Years Out: Solve The Healthcare Bridge
If you retire before 65, health coverage is the objection that stops everything, and it has answers. Marketplace savings are set against the household income you report for the year (HealthCare.gov: reporting income and household changes), and for a retiree drawing from a mix of accounts that number is substantially a planning decision. A prospect once asked me, if you're retired, what income are they even basing premiums on? Exactly the right question. The withdrawal plan and the healthcare plan are the same plan. Details in health insurance options before age 65.
One To Two Years Out: Model The Elections
Now the permanent decisions get modeled, together, because they interact. Social Security is a household decision: the higher earner's claiming age sets the survivor check one spouse may live on for decades. Pension elections, still common in East Tennessee retirements, trade lump sums against monthly income and single against joint life. The right answers depend on the paycheck design, the tax map, health, and each other. Modeling them as a set is the whole point of having done the earlier steps first.
The Final Year: Practice The Paycheck
Before the last paycheck, build the first retirement one: the cash reserve funded, the monthly transfer scheduled, the first year of income sourced and tax-planned. Some households practice living on the retirement budget for six months while still employed, which converts anxiety into evidence. By retirement day, the transition should be administrative. The plan tells us what the investments need to do, the paycheck is already flowing, and the only thing left to change is where you spend Tuesday mornings.
The Five-Years-Out Checklist
If retirement is inside five years, each of these deserves an answer you could show somebody.
- Real annual spending, from statements, including the lumpy items like cars, roofs, and travel
- A written answer to whether the portfolio plus Social Security and pension funds that spending
- A portfolio positioned for the withdrawal years, with the next several years of income insulated
- A year-by-year tax map from the last paycheck through the first RMD year
- A healthcare bridge plan if either spouse retires before 65, with the income it assumes
- Social Security modeled as a household, including the survivor benefit
- Any pension election modeled against the whole plan before anything is signed
- A first-year retirement paycheck design, ready to switch on
Risks, Limits, And Honest Caveats
The sequence above is a strong default rather than a rule. Households with businesses to sell, equity compensation, inheritances in motion, or health concerns need the same pieces in a different order, and some decisions, like a sudden severance offer, arrive on someone else's schedule. The framework bends; the requirement that someone owns the whole picture doesn't.
Every strategy named here has costs as well as benefits. Conversions raise current taxes and can affect Medicare premiums and subsidies. Delaying Social Security trades current income for longevity insurance, which is only a win if the household needs the insurance. De-risking a portfolio too far, too early, carries its own quiet cost. These are modeling questions, not slogans.
And rules move: RMD ages, tax brackets, subsidy cliffs, and Medicare thresholds have all changed within the last few years. A five-year plan gets revisited annually or it stops being a plan.
Follow-Up Questions
Is five years out too early to talk to an advisor?
It's close to ideal. Five years leaves room to reset risk gradually, use multiple conversion years, and fix anything the first real look uncovers. Ten years out, the conversation is thinner but still useful. The week after you announce your retirement, most of the big levers are already set.
I'm eighteen months out. Is it too late?
No, but the work compresses. The elections, the paycheck design, and the healthcare bridge all still have to happen, just faster and with fewer optional years in the tax map. Later than that, the job shifts to making the best of the decisions that remain, which is still worth doing well.
How is this different from what my current advisor does?
Ask them to show you the transition work: the tax map, the election modeling, the paycheck design. Some advisors do all of it. Many manage the portfolio and wish you well on the rest. If you're unsure which you have, a second opinion scoped to the transition is a fair, low-drama test.
Should I move my 401(k) before I retire?
Not reflexively. The right home for that money depends on your plan's costs and options, whether the age-55 exception to the early-withdrawal penalty applies to you (IRS: exceptions to tax on early distributions), upcoming conversion plans, and creditor and tax details that vary by situation. It's a real decision with a right answer for you, which is different from a default answer for everyone.
What does working with you look like for a pre-retiree?
It starts with an Explore Call to establish fit, and if the work makes sense, the Keystone Method builds the plan over about six months of working meetings: the number, the risk reset, the tax map, the elections, and the paycheck, in the order above.
Sources
Related Talley Wealth Resources
If this question is on your mind, these pages are natural next reads:
Retirement guide
Ask The Honest Version Of The Question
If your version is anywhere near can I retire, or should I be doing something with these five years, an Explore Call will get you a straight answer about whether the work fits.
For discussion purposes only. Examples are hypothetical and this is not individualized tax, investment, or legal advice. Retirement transition decisions should be reviewed against your full facts and with the right professional before implementation.