Summary

The five years preceding retirement are a pivotal financial period, demanding strategic action to ensure long-term security. It's crucial to maximize savings during peak earning years, leveraging 401(k) and Roth options, while meticulously planning Social Security claiming for optimal household benefits. Proactively address healthcare costs, understanding Medicare's limitations and potential surcharges, and manage retirement income taxes through smart Roth conversions. Avoid accumulating new debt that could strain future fixed income. Realign your investment strategy to mitigate sequence-of-returns risk, balancing growth with stability and maintaining a cash reserve. Prioritize your own retirement over open-ended financial support for adult children. Finally, develop a detailed budget and "test-drive" your projected retirement lifestyle to confirm its affordability and ensure a comfortable transition.

Retirement’s five-year countdown is one of the most financially consequential periods of a person’s life. With paychecks ending soon and portfolio withdrawals on the horizon, small planning gaps can compound into outsized costs. Decisions made in this window might determine whether savings last comfortably for decades — or fall short far earlier than expected.

If you expect to retire within the next five years, congratulations. You are entering one of the most important planning windows of your financial life. At this stage, the goal is no longer just to accumulate as much as possible. You also want to convert savings into a reliable income plan, reduce avoidable risks and make sure your retirement lifestyle is actually affordable.

It is also the time to take control of your health and start learning about your Medicare options. It is also a great time to do some proactive tax planning to ensure you aren’t overpaying your taxes throughout your retirement.

Small decisions can have an outsized impact when your paycheck is about to stop. Here are eight common mistakes to avoid before you hand in your notice.

1. Not Making The Most Of Your Final Chance To Boost Savings

Your final working years may also be your highest-earning years, making them a valuable opportunity to save aggressively.

In 2026, employees can defer up to $24,500 into most 401(k), 403(b) and governmental 457 plans. The general catch-up contribution for people age 50 and older is $8,000, while eligible workers ages 60 through 63 may be able to contribute an additional $11,250 instead.

Business owners can potentially contribute hundreds of thousands of dollars this year to a cash balance plan. Review your payroll elections now; a percentage that once captured the maximum may no longer do so after a raise or an IRS limit increase. At minimum, try to capture the full employer match.

2. Not Running The Numbers Before You Claim Social Security

You can generally claim retirement benefits as early as age 62, but filing before full retirement age permanently reduces your monthly check. For people born in 1960 or later, full retirement age is 67. Waiting beyond full retirement age can increase your benefit by 8% per year until age 70. That does not necessarily mean everyone should wait; health, cash flow, marital status, taxes and longevity all matter. The mistake is treating the decision like a birthday present instead of a lifetime-income calculation.

Married couples should coordinate their filing choices because the higher earner’s decision can also affect survivor income. Build several claiming scenarios before you retire and compare the long-term household impact, not merely the first year’s cash flow. A CFP can help you develop a strategy to maximize your household lifetime Social Security benefits.

3. Not Planning Ahead For Healthcare Costs

Medicare is not free, and it does not cover everything. Premiums, deductibles, prescription drugs, dental care, vision care and long-term care can all strain a retirement budget. If you plan to retire before 65, price the insurance bridge between employer coverage and Medicare. If you are already approaching 65, understand your enrollment deadlines even if you delay Social Security. Also keep income-related Medicare surcharges in mind: a large Roth conversion or capital gain can raise future premiums.

The higher the income you expect to have in retirement, the more value you can get now from proactive planning to minimize your IRMAA surtax as well as the Obamacare Medicare Surtax.

4. Not Accounting For Taxes On Retirement Income

Retirement does not automatically place you in a low tax bracket. Withdrawals from traditional retirement accounts are generally taxable, required minimum distributions may eventually increase income, and a portion of Social Security benefits may be taxable. The years after you stop working but before required distributions begin can create a planning window for strategic Roth conversions or capital-gain harvesting. Coordinate these moves with a qualified tax professional; accelerating too much income in one year can increase taxes and Medicare costs.

5. Not Avoiding Debt Your Retirement Paycheck Cannot Support

A major purchase may look manageable while you earn a salary and receive bonuses. It can feel very different after you begin living on portfolio withdrawals and fixed income. Before financing a second home, luxury vehicle or large renovation, test the payment against your projected retirement cash flow.

High-interest credit card debt is especially dangerous. Paying it down can deliver a guaranteed benefit equal to the interest you no longer owe. Retirement should buy flexibility, not lock you into years of oversized payments.

Strategic debt in retirement can be a great tool when used properly. I spoke with someone who purchased a car with 0% interest. While having a car payment is annoying, keeping the money invested and earning stock market returns was the smartest financial move when making their car purchase.

6. Not Adjusting Your Investing Strategy For The Retirement Phase

A portfolio that worked during your accumulation years may be too volatile once withdrawals begin. A severe market decline early in retirement can be especially damaging because you may be forced to sell investments while values are depressed.

This is known as sequence of returns risk. The answer is not necessarily to abandon stocks; a retirement that may last 25 or 30 years still needs growth. Instead, align your mix of stocks, bonds and cash with your spending needs, pension income, Social Security and tolerance for volatility.

Avoid concentrated bets you cannot afford to hold through a downturn, including an oversized position in employer stock, speculative assets or highly leveraged real estate. Diversification is not exciting, but retirement income planning should not depend on excitement.

Consider keeping a dedicated reserve for near-term spending so a bear market does not dictate when you sell. The right amount is personal and should reflect guaranteed income, essential expenses and your broader investment plan, not an arbitrary rule.

7. Sacrificing Your Retirement To Support Adult Children

Helping family can be deeply meaningful, but open-ended support can quietly consume the money intended to fund your retirement. Paying adult children’s rent, carrying private student loans or making repeated “temporary” gifts can force you to work longer or reduce your future standard of living. You can borrow for college, a car or a home. You cannot borrow for retirement.

Set a specific annual family-support budget and decide what you will, and will not, fund. Generosity works best when it is intentional and sustainable.

8. Not Retiring From Work With A Plan For What Comes Next

Many people can describe the retirement they want in broad terms: travel more, spend time with family, volunteer or finally tackle the garden. Fewer attach a realistic price tag and calendar to that vision. Build two budgets, one for essential expenses and another for discretionary goals. Include large irregular costs such as replacing a car, home repairs, helping family and major trips. Then identify which income sources will cover each category.

One of the smartest moves is to test-drive retirement before you leave work. For several months, live on your projected retirement income and direct the rest of your paycheck to savings. The exercise can reveal overspending, missing expenses and whether your desired lifestyle feels comfortable on the available cash flow.

The five years before retirement are not the time to coast. They are your opportunity to maximize savings, eliminate financial friction and turn a collection of accounts into a coordinated income plan. Run the numbers now, stress-test your assumptions and update the plan annually. A few thoughtful decisions today can buy substantially more freedom for the decades ahead.