5 Things to Do Today If You Want to Retire in 5 Years

Key Takeaways

• The virtue of thinking about retirement preemptively is that not only can ideate about what you want your retirement to be like and when you wish to retire, but also you can make any course corrections that you need to make to make that retirement happen.
• You may want to think through whether work is going to be part of your retirement plan, which certainly has implications for the financial aspect of your retirement.
• It’s super important to have your arms around what you’re actually spending, and then you can tinker with the line items in your budget and see whether you will be making any changes to your spending.
• You want to make sure that you have an account created on the Social Security’s website, so when you do modeling out of various Social Security-claiming dates, you will be using your own actual earnings history.
• People who want to use a fixed real withdrawal system for their retirement spending might want to nudge their withdrawal rate, so they can start to get a sense of whether their planned spending is in the right ballpark or whether they need to make some course corrections.
• As retirement approaches, as it gets within say 10 years away, you would want to start derisking your retirement portfolio.

Margaret Giles: Hi, I’m Margaret Giles from Morningstar. Stocks have been volatile recently, and many investment firms have suggested that US equity returns are likely to be muted over the next decade relative to their long-term history. Joining me to discuss five key steps to take if you plan to retire within the next five years is Christine Benz. Christine is Morningstar’s director of personal finance and retirement planning, host of The Long View podcast, and author of the bestselling book, How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement.

Hi, Christine.

Christine Benz: Hi, Margaret. Good to see you.

Advantages to Preemptive Retirement Planning

Giles: Good to see you too. OK. So, Christine, what’s the advantage of being preemptive about retirement planning rather than waiting until a year or two to think through some of these considerations?

Benz: Yeah, I’ve started to think of this idea of retirement as a hard stop, as kind of a vestige of a bygone era, that ideally we would transition very gradually into retirement. We’d think about retirement preemptively, even in maybe the 10 to 15 years leading up to our anticipated retirement date. And the virtue of that is that you can kind of ideate about what you want your retirement to be like and when you wish to retire, but also you can make any course corrections that you need to make to make that retirement happen. So if it turns out that you need to save more to support your in-retirement lifestyle, well, you still have time if you start when you’re in your 50s—ideally in your early 50s—versus waiting until you’re a little closer to that date. So I think of it as kind of a glide path as a best practice when people think about their retirement plans.

How Work Factors Into Retirement Planning

Giles: Absolutely. So let’s get into the five key steps that you think people should take when they’re at least five years out. The first relates to work. So what should people be thinking about when it comes to work?

Benz: Some people may say, you know what, I plan to be fully done. Other people might say, well, you know, there are aspects of my work that I might want to continue doing longer. Maybe I’ll do something completely different. Entrepreneurship is a growing trend among older adults. So you want to think through whether work is going to be part of your retirement plan. And that certainly has implications for the financial aspect of your retirement. If you can keep some income coming in the door, everything is easier in terms of the pressures that you might put on your portfolio. You can think through the lifestyle considerations of continuing to work. And then importantly, you also want to think about the potential for not being able to work. A lot of people have grand visions of continuing to work well into their 70s. But when we look at the data, we do see a disconnect that people anticipate that they’ll be able to retire, that they’ll be able to continue working longer than they actually do. So you want to be realistic about it. You don’t want to have continuing to work be a key component of your retirement plan because of the realistic possibility that you may not be able to.

Importance of Tracking Expenses Leading Up to Retirement

Giles: So the next step that you think that people should take is to track their expenses. Why is that so important?

Benz: Well, this is a hard process. I think many people don’t like this idea of doing sort of the granular budgeting, but it’s super important to have your arms around what you’re actually spending. And then you can sort of tinker with the line items in your budget and see whether you will be making any changes to your spending. You may have changes that will be occurring organically. For example, if your mortgage will be paid off in seven years, you can factor those into your retirement spending plan. But this is really kind of one of the building blocks of a retirement plan, thinking about what your in-retirement spending will look like. And you can use a budgeting app to do that. You can take pen to paper. However you go about it, the idea is that you’re getting a clear-eyed view of what your spending is today, and how those line items might change in the future.

What to Look for When Checking Social Security Prior to Retirement

Giles: So the next step is checking up on Social Security. So what’s the value of doing that, and what should people be looking for there?

Benz: Yeah, so Social Security is a linchpin for many people’s retirement plans, most people’s retirement plans. It’s a key source of income in retirement. So you want to make sure that you have an account created on the Social Security’s website. That way when you do modeling out of various Social Security-claiming dates, you will be using your own actual earnings history versus sort of rough assumptions that are available if you’re not using your own profile. So make sure that you have that profile created. Also check up to make sure that they are harnessing the correct information about your own earnings history. If you’re part of a married couple, you probably would want to look at both of your earnings histories and plan out a Social Security-claiming strategy together. One site that I often recommend for that is a tool called Open Social Security. It’s a free tool that you can use, and it can help you get your arms around what would be the optimal filing dates, and it’s especially helpful for married couples but also useful for singles.

How to Tell if Your Current Retirement Savings Are on Track

Giles: Very helpful. So the next item on your checklist is to assess current retirement savings. So what should people be looking for there and how can they tell if they’re on track?

Benz: Yeah, this begins to be sort of a process here. So if we’re looking at our spending and then we’re subtracting out our Social Security income, what we’re left over with is our anticipated demands on our portfolio in retirement. And so you’re looking at that figure as sort of an annual figure. And if you’re a few years from retirement, you can then start using some of the rules of thumb that we use when thinking about retirement spending. Four percent is an offsided guideline in our recent research. We suggested that people who want to use kind of a fixed real withdrawal system for their retirement spending, that they might actually nudge their withdrawal rate, their starting withdrawal rate, a little bit lower. But you can start to get a sense of whether your planned spending is in the right ballpark or whether you do need to make some of those course corrections that we’ve talked about. So those course corrections might entail saving more, investing differently, putting off your planned retirement date, maybe changing up your planned spending in retirement. You have some levers that you can pull if it looks like your portfolio spending is a little bit too high relative to where it should be.

How Preretirees Can Derisk Their Retirement Portfolios

Giles: OK, so the final step that people should take is turning their attention to their portfolios. They’ve completed the other steps. Here we are at the last one. So what are the key things they should have been thinking about with their portfolios?

Benz: Yeah, this is absolutely one that people should not put off. The idea is that as retirement approaches, as it gets within say 10 years away, you would want to start derisking that portfolio. Ideally, you would be doing this very gradually in your accumulation years, but a lot of people do come into retirement with very equity-heavy portfolios. The idea is that you’re taking some risk off the table, and what you’re doing there is that you’re protecting yourself against a bad sequence of returns, specifically bad equity market losses showing up early in your retirement. So if you’ve built out your portfolio’s allocation to safer assets, you could spend from those and leave your more aggressive equity assets intact—leave them room to recover when the market eventually does. So that’s the basic thought process. I think it can be super helpful for people to do a little bit of diagnostics on where their portfolio is currently situated with respect to their asset allocation, look at what are reasonable targets for people approaching retirement. They may want to steer all of their new contributions into safer investments, or they may actually want to take some steps ideally within their tax-sheltered accounts to make them less aggressive. But definitely look at how your portfolio is situated relative to what is a reasonable target for someone approaching retirement.

Giles: OK, well thanks for taking us through these five steps. It’s really helpful to see them laid out like that, and thanks for taking the time, Christine.

Benz: Thank you so much Margaret.

Giles: All right, I’m Margaret Giles with Morningstar. Thanks for watching.

Watch Should You Tweak Your Withdrawal Rate for 2025? for more from Christine Benz.