The Most Important Financial Decisions in the Five Years Before Retirement

The last stretch before retirement can feel both exciting and overwhelming. You’re close enough to visualize your daily life after work—but far enough away that big financial decisions still matter. Whether you're in Louisville, Prospect, KY, or anywhere preparing for retirement, these five years are your opportunity to tighten your plan and make sure everything works together.

Below are the most important choices you’ll face—and how to navigate them with confidence.

1. Confirm Your Retirement Readiness

The question most near retirees ask is, “Am I actually ready?”
Retirement readiness goes beyond having a certain amount saved. It’s about understanding:

• How much income your savings can generate
  
• How your spending will change when work stops
  
• How inflation and interest rates may affect your long‑term plan
  
• Whether you have the right balance of guaranteed vs. market‑based income

This is the perfect time to stress‑test your retirement income plan. A stress test shows how your nest egg holds up under different market conditions, tax scenarios, or healthcare expenses. You can explore planning strategies for near retirees here:
https://www.jlacapital.com/near-retirees

2. Build a Smart Tax Strategy

Withdrawal strategy is one of the biggest determinants of whether $2.5 million is “enough.”

Common approaches include:

• Fixed percentage withdrawal
  
• Guardrail‑based withdrawals
  
• Dynamic spending rules based on market performance
  
• Bucket strategies to manage sequence‑of‑returns risk

The traditional “4% rule” is often cited, but it was designed decades ago under specific market assumptions. Today’s retirees face different realities—lower interest rates, greater longevity, higher healthcare costs, and more volatile markets. As a result, generic rules of thumb can be misleading or even dangerous.

A personalized withdrawal plan ensures your income adjusts for markets, inflation, and spending changes over time.

3. Decide When to Claim Social Security

Social Security is one of the biggest financial decisions you’ll make. The timing affects:

• Monthly income
• Spousal benefits
• Taxation of Social Security
• Longevity risk

Most people don’t maximize their benefits simply because they claim without analyzing their full financial picture. A coordinated plan—especially with help from a Louisville‑area retirement planner like JLA Capital—can result in significantly higher lifetime income.

4. Align Your Portfolio Risk With Your Retirement Date

Your risk tolerance naturally changes as retirement approaches.
But there’s a difference between risk tolerance and risk capacity:

• Risk tolerance = your emotional comfort level
  
• Risk capacity = how much financial risk your plan can withstand

As you get closer to retirement, these two factors often shift—and sometimes they collide. You may feel nervous about markets, but you also need growth to support a 25‑ to 30‑year retirement.

That’s why a risk assessment is essential. You can take one here:
https://www.jlacapital.com/risk-assessment

Why Risk Tolerance Changes Near Retirement

As retirement nears, several things become more real:

• You have less time to recover from a market downturn
  
• Your portfolio becomes a paycheck
  
• The psychological impact of volatility increases
  
• The sequence‑of‑returns risk becomes more dangerous

Balancing growth with protection is key. A well‑structured portfolio can help reduce emotional decision‑making—one of the biggest threats to long‑term success.

5. Create a Withdrawal and Income Plan

Once paychecks stop, your portfolio becomes your income.
In the five years before retirement, it’s crucial to establish:

• How much you can safely withdraw each year
  
• From which accounts to draw first
  
• How taxes will be affected by your withdrawal sequence
  
• How to adjust withdrawals during market shifts
  
• How to incorporate Social Security and pensions
  
• Whether annuities or guaranteed income play a role

Without a withdrawal strategy, even well‑funded retirees can run into trouble. A coordinated plan helps your retirement income last as long as you need it.

6. Prepare for Healthcare Costs Before Medicare

For many retirees, healthcare becomes a major budget line—especially if you retire before Medicare eligibility at age 65.

Key steps include:

• Evaluating employer coverage extension options
  
• Comparing ACA marketplace plans
  
• Estimating future Medicare premiums
  
• Planning for out‑of‑pocket expenses
  
• Considering long‑term care strategies

Even if you’re in strong financial shape, healthcare planning ensures your retirement budget stays on track.

7. Reduce Emotional Investment Decisions

In the final years before retirement, emotional decisions can become costly.
Fear of market volatility, the urge to move to cash, or reacting to headlines can disrupt even the best‑designed plan.

A fiduciary advisor helps you:

• Maintain discipline
  
• Avoid costly timing mistakes
  
• Navigate volatility with confidence
  
• Stick to a long‑term strategy
  
• Make adjustments when they’re actually needed—not emotionally triggered

Partnering with a firm like JLA Capital in Prospect, KY provides structure, accountability, and expertise at a time when decisions carry extra weight.

Final Thoughts: Use These Five Years Wisely

The five years before retirement are your opportunity to firm up your plan and reduce uncertainty. With clear guidance on taxes, investments, income planning, healthcare, and market risk, you can transition smoothly into the retirement you’ve been working toward.