Waiting too long to build an actual retirement income and withdrawal strategy is one of the biggest financial mistakes you can make in the five years before retirement. As retirement gets closer, important planning windows around long-term care coverage, Roth conversions, and Social Security can become narrower.
Why the Five Years Before Retirement Matter
If you are about five years from retirement and have $300,000 or more in investments and other assets, you may have more planning decisions ahead than simply deciding when to stop working.
This period can give you time to test different retirement scenarios, adjust your savings strategy, and prepare for the transition from earning a paycheck to relying on a combination of Social Security, investments, pensions, and other income sources.
The challenge is that some decisions become harder once you reach retirement.
For example, long-term care insurance generally depends on your health and eligibility at the time you apply. If you wait until you need coverage or your health changes significantly, your options may be more limited.
The same idea applies to tax planning. You may have years when your taxable income is lower than it will be later in retirement. Those years can create opportunities to consider Roth conversions, which move money from certain traditional retirement accounts into Roth accounts. A conversion can create taxable income, so the potential tax impact should be reviewed with a qualified CPA or tax professional before you act.
Social Security is another area where timing matters. If you are married, the age at which each spouse claims benefits can affect your household’s income strategy. There may be several factors to consider, including your ages, work histories, expected benefits, health, other income, and how long you expect retirement assets to last.
Consider a Simple Example
Imagine you are 62, married, and hoping to retire around age 67. You have $450,000 across retirement and investment accounts, a mortgage, and an estimate of how much your household will need each month in retirement.
You might be tempted to wait until age 67 to figure everything out.
But those five years could be useful planning time.
You could compare different Social Security claiming strategies, review how much income your portfolio may need to provide, and evaluate whether your investment mix fits your retirement time horizon.
You could also look at whether Roth conversions make sense during lower-income years before retirement or before required minimum distributions may increase taxable income later. At the same time, you could explore long-term care coverage while you may still qualify based on your health.
None of these decisions guarantees a better financial outcome. Investment values can rise and fall, tax rules can change, and insurance availability depends on individual circumstances. The point is to give yourself time to evaluate your choices while you still have choices available.
Don’t Wait Until Your Last Day of Work
Retirement planning is not just about accumulating enough money.
You also need to think about how you will turn your assets into income, how much you expect to spend, how much cash you may need for emergencies, and how your different income sources will work together.
A retirement account balance can look comfortable on paper, but the more important question is how that money fits into your expected spending over potentially decades of retirement.
You may also want to consider expenses that are easy to overlook, such as home repairs, insurance costs, travel, taxes, and potential long-term care needs.
Building a withdrawal strategy before retirement gives you an opportunity to identify gaps while you still have time to address them.
Who Should Pay the Most Attention?
This planning window deserves particular attention if you are within about five years of retirement and have accumulated meaningful assets.
It may be especially important if you:
Have $300,000 or more in retirement and investment assets.
Are married and need to coordinate Social Security decisions.
Expect your income to change significantly when you retire.
Have traditional retirement accounts that may create future taxable income.
Want to evaluate long-term care coverage while you may still qualify.
Are unsure how much you can safely withdraw from your investments.
Want to reduce surprises as you move from employment income to retirement income.
Your plan should also reflect your own spending needs, investment allocation, insurance coverage, and other financial resources.
Start Before Retirement Starts
The biggest mistake may not be choosing one particular investment or claiming Social Security at one particular age. It may be waiting until retirement is already here before building a coordinated plan.
When you start several years ahead, you have more time to identify planning opportunities, compare different approaches, and make adjustments gradually rather than reacting to decisions under a deadline.
Conclusion
We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”
What’s the biggest financial mistake people make in the five years before retiring?
Waiting too long to build an actual income and withdrawal strategy — most of the valuable planning windows (long-term care insurability, Roth conversion opportunities, Social Security timing) narrow the closer you get to your actual retirement date.
The five years before retirement are when the most time-sensitive opportunities exist: qualifying for long-term care coverage while healthy, converting to Roth accounts during a lower-income year before required distributions begin, and coordinating Social Security timing with a spouse. Many people instead wait until their actual retirement date to start planning, which forecloses several of these options. Getting a specific plan built during this window, rather than reacting after the fact, tends to produce meaningfully better outcomes.
When’s the best time to buy long-term care insurance, and is it too late once I’m near retirement?
The best time is typically in your 50s to early 60s, while you’re still healthy and insurable — it becomes more expensive and harder to qualify for the closer you get to needing it.
Long-term care insurance underwriting depends heavily on current health, which means waiting until a health issue emerges can mean paying significantly more, or not qualifying at all. While it’s rarely truly “too late” to explore options, the range of available choices and affordability both narrow considerably compared to purchasing in your 50s or early 60s.
What is a Roth conversion ladder, and does it apply to someone retiring in the next few years?
A Roth conversion ladder involves converting a portion of tax-deferred savings to Roth accounts over several years, typically timed to lower-income years, to manage the tax cost and reduce future required distributions.
Rather than converting a large sum all at once, a laddered approach spreads conversions across several years — often the years just before or after retirement, when income may be temporarily lower — to avoid pushing yourself into a much higher tax bracket in a single year. This strategy is worth modeling specifically against your own income timeline rather than applying as a general rule.
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Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. This commentary reflects the personal opinions, viewpoints and analyses of the author, Dale Soutas. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party . The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended.
This is not endorsed or affiliated with the Social Security Administration or any U.S. government agency
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