Building a Five-Year Plan for Retirement

Surprising fact: nearly 60% of Americans say clear goals would make them more confident about the future.

Start today by picturing what your life will look like in the next few years. A focused five year retirement plan maps a realistic date, income sources, healthcare choices, and housing moves so you can reduce stress and uncertainty.

People often have a lot of questions about savings, taxes, and timing. This practical guide answers those questions step by step and shows how small actions add up over time.

The approach here is action-oriented. You’ll learn how to set a target date, map expenses, coordinate income streams, and align your portfolio with personal goals. Thoughtful planning helps you adjust for market shifts and changing priorities.

Want hands-on tools as you go? See this helpful resource to get started: plan with AI-powered tools.

Key Takeaways

Clarify your target date and what retirement will look like to cut stress.
Answer core questions about savings, income, and healthcare early.
Use small, consistent steps to build momentum over the next few years.
Coordinate taxes, housing, and portfolio risks for a durable outcome.
Keep the plan flexible and revisit it as your situation or the market changes.

Start Strong: Define Your Retirement Date, Needs, and Spending Today

Begin with clarity. Pick a tentative retirement date and translate your desired lifestyle into three simple buckets: needs, wants, and wishes. That helps you focus the money need that supports your baseline quality of life.

Next, run a full audit of current expenses. List housing, healthcare, insurance, taxes, travel, hobbies, subscriptions, and giving. Don’t forget irregular costs like home repairs, car replacement, and large medical deductibles—annualize them into a reserve.

Build an inflation assumption into your projections so core spending isn’t underestimated. Compare today’s savings and expected retirement savings to projected spending to find any gap and the time you have to close it.

Quick checklist

Document non-negotiable things such as family support or a second home.
Map major expense horizons (for example, replacing a roof in 8 years).
Right-size insurance, log subscriptions, and negotiate recurring bills.

Action: Finish a one-page snapshot showing baseline spending, your target date, and one immediate savings change. For practical tools and further guidance, see these retirement planning tips.

Year-by-Year Countdown: The Last Five Years Before Your Retirement

Break the last stretch into manageable milestones so you can test assumptions and reduce surprises. Use each remaining year to focus on one or two priorities. That keeps work simple and avoids last-minute rushes.

Five years out

Collect your retirement savings numbers across 401(k), IRA, HSA, and taxable accounts. List pensions, annuities, and other income sources.

Ask big questions now about timing, pre-65 healthcare, and whether market swings require higher savings or allocation changes.

Four years out

Revisit assumptions and test whether relocation or downsizing lowers taxes and expenses. Research communities carefully rather than assuming the grass is greener.

Update estate documents: wills, powers of attorney, and health directives so your paperwork reflects current wishes.

Three years out

Picture what day-to-day life will look like—work, hobbies, and social time—and align spending to that vision.

Address mortgage concerns early; refinancing is often easier while employed. Prep home projects so they finish well before your transition.

Two years out

Recheck income and expenses and map tax moves you can make when earned pay drops. Coordinate Social Security timing with other cash flows to reduce sequence-of-returns risk.

Final year

Tighten discretionary spending and confirm payoff dates for debts like car loans or mortgage milestones. Build a month-by-month checklist for benefits, health coverage, and account distributions.

“Small, steady steps in the last years remove guesswork and build confidence.”

For a focused guide on timing Social Security and coordinating benefits, see maximize your Social Security benefits.

Five Year Retirement Plan: Your Next Steps Starting Today

Run simulations now to see how choices like relocation or part-time work shift your cash flow. Use a robust tool or advisor to model scenarios and stress-test assumptions.

Focus on what changes outcomes: relocation, starting a business, gifting goals, or legacy wishes. Link employer accounts, IRAs, HSAs, and brokerage accounts so the software can show tax-aware withdrawals and sequence-of-returns effects.

Annual checklist: review cash reserves, risk tolerance, asset allocation, diversification, and rebalancing terms. Update assumptions and repeat projections under both good and poor market conditions.

“Modeling realistic what-if branches makes your savings and time horizons resilient to surprise events.”

Document immediate steps to close gaps: increase contributions, delay large purchases, or adjust housing.
Set time-bound milestones and semiannual reviews to keep progress visible.
Get a second opinion from a fiduciary if assumptions or withdrawal terms feel uncertain.

Feature	What it tests	Action
Cash-flow modeling	Income gaps under stress	Adjust contributions or cash reserves
Scenario branches	Relocation, part-time work, healthcare shocks	Compare outcomes and select resilient options
Account linking	Tax-aware withdrawals	Optimize sequence and minimize taxes

For tools and concrete income options, see best retirement income strategies.

Optimize Retirement Income Timing: Social Security and Cash Flow Strategy

Deciding when to start Social Security is one of the highest‑impact choices in retirement cash flow. You can claim as early as 62 with a reduced benefit. At full retirement age (often 66–67) you get your full benefit. Delaying past FRA raises benefits by about 8% per year until age 70.

Clarify your full retirement age and map that uplift against other income sources. Compare the implicit rate of return from delaying to portfolio risk and your health outlook.

Coordinate spousal claiming so survivor protection and household income stay resilient. Evaluate whether early claiming improves short‑term cash flow but raises taxable income and affects long‑term spending flexibility.

Map month‑by‑month cash flow for the first months to avoid selling assets during market dips.
Use bridge strategies like part‑time work or modest withdrawals until benefits start.
Stress‑test multiple claiming dates to find breakeven points under different market paths.

Document your chosen date, SSA account tasks, and filing timeline. For related account guidance, review recommended top 401(k) plans.

Taxes, Accounts, and Withdrawals: Make Your Money Work Over the Next Five Years

Smart moves with accounts and conversions help limit taxable income as work winds down. Use contribution limits and catch-ups to accelerate savings while you still earn.

Max contribution and catch-up opportunities

In 2025 you can defer up to $23,500 to a 401(k)/403(b)/457/TSP. Catch-up contributions are $7,500, or $11,250 for ages 60–63. IRA catch-ups start at 50. HSA catch-up begins at 55; spouses 55+ must each use their own HSA to add catch-ups.

Tax diversification and withdrawal strategy

Blend pre-tax, Roth, HSA, and taxable accounts to control taxable income and shape retirement income. Conversions can be valuable in low-income years early in retirement.

“Roth conversions shift future growth to tax-free status, but each conversion starts its own five-year clock.”

Account	Key benefit	When to use
401(k)/403(b)	High deferral limits, tax-deferred growth	While employed; use catch-ups late in career
Roth IRA	Tax-free withdrawals after rules met	Convert in low-income years; mind five-year rule
HSA	Triple tax advantage for medical costs	Contribute early; add catch-up at 55

Map withdrawals to cover essentials while minimizing taxes across years.
Align investments: keep near-term cash low volatility and growth for later needs.
Review conversions annually and consult a CPA to manage tax brackets and Medicare thresholds.

For providers that simplify Roth moves, see top Roth providers.

Protect Your Health and Lifestyle: Medicare, HSAs, and Long-Term Care Planning

Understanding Medicare windows and how HSAs interact with other accounts reduces costly mistakes later. Medicare normally starts at 65. If you already receive Social Security, Parts A and B often auto-enroll you. Otherwise, sign up during your enrollment window to avoid penalties.

Budget realistically for monthly medical expenses. Typical ranges run roughly $200–$850 depending on plan choices, location, and inflation. Model how those expenses rise over years and how they affect your income and taxable withdrawals.

How to use HSAs and cover interim health needs

Stop HSA contributions at 65, but continue to use balances tax-free for qualified medical costs, including many Medicare premiums. People retiring before 65 should secure interim coverage via Marketplace, COBRA, a spouse’s plan, or employer options.

Map your Medicare timeline: Original Medicare + Medigap or a Medicare Advantage alternative.
Prepare for long-term care: roughly 60% of people need some help. Combine family support, a savings reserve, and insurance if it fits your health profile.
Build a 12–24 months healthcare cost projection so you can pay premiums, deductibles, and copays on time.

“Make sure you understand penalties for late enrollment and the part each coverage piece plays so there are no gaps.”

For deeper HSA guidance, see HSA strategies and retirement.

Keep Your Portfolio Aligned: Risk, Cash Reserves, and Rebalancing in the Home Stretch

A clear rule for moving money from growth to stability prevents rash decisions during market stress. Check your portfolio at least annually to confirm allocation, diversification, and rebalancing frequency.

Adjust asset mix as the date nears: revisit allocation and reduce risk modestly if your timeline shortens. Balance growth assets with high-quality fixed income so near-term spending doesn’t force sales into a down market.

Revisit allocation annually to manage risk and protect essential spending.
Build one to two years of cash and short-term bonds to fund 24–36 months of expenses.
Keep growth assets working for later years to address longevity and inflation.
Use calendar or threshold rebalancing rules to reduce emotional trading during market moves.
Place assets across accounts for tax efficiency and preserve liquidity for withdrawals.

“Document which money funds near-term needs and which sleeves are for long-term growth.”

Stress-test scenarios so your withdrawal and retirement income approach holds up under adverse markets. Keep the implementation simple, repeatable, and aligned with your written plan.

Conclusion

Conclusion

Close the process with a short, dated summary that names income sources and essential expenses. Put the key dates, which accounts fund which spending, and backup cash targets on one page so you can act fast when markets wobble.

Reconfirm this summary each year: your target date, Social Security timing, and how accounts cover taxes and everyday spending. Keep changes small and disciplined—steady savings, prudent investments, and an allocation that respects inflation protect outcomes.

Use the checklist to answer lingering questions about retirement savings, mortgage choices, insurance, and contingencies. For short-term sequencing ideas, see this concise five‑year resource, and for growth options consider top ETFs for long-term growth in 2025: top ETFs.

Final thought: match your money to your life goals, review annually, and you’ll keep control of income, spending, and risk as time moves forward.

FAQ

How do I choose a target retirement date that fits my goals?

Start by listing your “needs, wants, and wishes” for retirement lifestyle, then work backward from the most realistic date when income, savings, and health allow that lifestyle. Factor in Social Security timing, mortgage payoff, and any required minimum distributions. Use a planning tool or advisor to test scenarios and adjust the date for changes in market returns, inflation, or unexpected expenses.

What’s the best way to audit current expenses and project future spending?

Track 12 months of spending to capture patterns, then categorize into essentials, discretionary, and one‑time items. Increase essentials for projected inflation and add new retirement costs such as healthcare or travel. Build conservative and optimistic scenarios and stress‑test them against lower investment returns or higher medical costs.

How should I prioritize actions five years out?

Assess total retirement savings, income sources (Social Security, pensions, rental, part‑time work), and outstanding debts. Fill major gaps with catch‑up contributions to 401(k) or IRA, adjust asset allocation, and confirm beneficiary and estate documents. Start thinking about housing and long‑term care options.

What should I tackle four years before leaving work?

Revisit cash flow projections and update estate and beneficiary forms. Explore housing choices—downsizing, renting, or aging in place—and estimate costs. Talk to financial, tax, and legal pros to refine wills, powers of attorney, and healthcare directives.

Which decisions matter three years before retirement?

Solidify daily living plans and finalize housing strategy. Address any mortgage or refinance choices while still employed to get better terms. Increase cash reserves for transition year needs and begin converting some gains into safer income sources if needed.

What tax work should I do two years out?

Map expected taxable income in the first retirement years and identify opportunities for tax smoothing—Roth conversions in low‑income years, timing of capital gains, and use of HSA contributions. Coordinate with your advisor to avoid large tax spikes that could affect Medicare premiums or Social Security taxation.

How do I manage the final year before stopping full‑time work?

Tighten discretionary spending, confirm payoff dates for major debts, and finalize claims for benefits. Ensure beneficiary designations, insurance coverages, and Medicare enrollment are in order. Prepare a clear income drawdown schedule for the first 12–24 months.

When should I start Social Security, and how does delaying affect benefits?

You can claim as early as 62, but full retirement age varies by birth year. Each year you delay past full retirement age up to 70 increases your benefit by a percentage, which may make sense if you expect a long lifespan and don’t need the income immediately. Coordinate timing with spouse benefits and taxable income to maximize household lifetime income.

How do I coordinate Social Security with other income sources?

Model household cash flow combining pensions, withdrawals from IRAs/401(k)s, part‑time earnings, and Social Security. Use tax planning to minimize combined tax and Medicare surcharge impacts. Consider delaying Social Security if other liquid assets can fund early retirement years.

Which account contributions should I prioritize in the run‑up to retirement?

Max out employer 401(k) up to any match first, then consider IRAs and catch‑up contributions if eligible. Contribute to an HSA if you have a high‑deductible health plan to build a tax‑advantaged medical reserve. Maintain some taxable savings for flexible withdrawals and tax diversification.

What is tax diversification and why does it matter?

Tax diversification means holding pre‑tax (traditional), Roth, HSA, and taxable assets. It gives flexibility to manage taxable income each year, control Medicare premiums, and reduce forced high‑tax withdrawals. Work with a tax advisor to decide the right mix for your projected income path.

When are Roth conversions useful and how does the five‑year rule apply?

Convert traditional IRA funds to Roth in years your taxable income is relatively low to lock in tax‑free growth and withdrawals later. Be aware of the Roth five‑year rule: each conversion has a five‑taxable‑year clock before tax‑free withdrawals of converted principal avoid penalties—plan timing accordingly.

How do I plan for Medicare and out‑of‑pocket health costs?

Enroll in Medicare at 65 to avoid penalties. Compare Original Medicare plus Medigap versus Medicare Advantage for costs and coverage. Estimate premiums, deductibles, and likely out‑of‑pocket needs; fund them with HSA savings or a dedicated emergency reserve to avoid dipping into long‑term investments.

What role should long‑term care planning play in my final years of work?

Evaluate family support, liquid savings, and insurance options. Long‑term care insurance or hybrid life policies can protect assets if you expect significant care needs. Even without insurance, increase savings and document care preferences to reduce stress if needs arise.

How should I adjust my portfolio as I approach the target date?

Gradually reduce equity risk and increase bonds or cash to protect near‑term income needs while keeping some growth exposure for inflation. Rebalance regularly and maintain a ladder of fixed‑income or cash reserves to cover 2–5 years of spending.

How much cash should I keep on hand before and after leaving work?

Aim for an emergency reserve plus 12–36 months of living expenses in liquid, low‑volatility accounts to avoid selling investments during market downturns. The exact amount depends on guaranteed income sources, market risk tolerance, and planned retirement timing.

What tools or advisors can help stress‑test my exit strategy?

Use reputable retirement planning software like Fidelity Retirement Score, Vanguard Retirement Nest Egg Calculator, or work with a certified financial planner (CFP®) who runs Monte Carlo and scenario analyses. These tools reveal vulnerabilities like sequencing risk, inflation, and market shocks.

How do mortgage and housing choices affect the countdown?

A mortgage payment reduces flexibility, so consider refinancing while employed or planning to downsize before full retirement. Evaluate housing costs, taxes, and maintenance against the benefits of staying put. Housing decisions materially affect required retirement income and cash reserves.

What key documents should I update before leaving work?

Update wills, durable powers of attorney, healthcare directives, beneficiary designations, and any trust documents. Confirm retirement account beneficiaries and coordinate estate plans with your spouse or heirs to ensure smooth transfers and tax efficiency.

How often should I revisit my transition timeline in the last months?

Review your timeline every 3–6 months in the final two years and monthly in the last six months. Check savings, tax projections, benefit election windows, and healthcare enrollment dates so you don’t miss critical deadlines.