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They say the five years before you retire are the most crucial for success. It’s when you need to make the big decisions to ensure you slide into retirement without a hitch.

Some of you may be thinking, what’s so hard about retiring? If you’ve been saving throughout your career, you should be good to go!

But time for a reality check.

Transitioning from saving to living off your savings can actually be pretty intimidating. It’s filled with unknowns and “what ifs” that can make even the most seasoned planners a bit nervous. In fact, one of my friends who is a financial planner says her heart still stops when it’s time for her clients to officially quit their jobs, even though she knows better than anyone that they are fully prepared.

Nagging questions can keep you up at night.

How much will I actually have saved?

Will it really be enough?

How much will I have to pay in taxes?

Do I have enough to cover it?

No one wants that.

Addressing all your questions early is the key to reducing the stress and uncertainty that comes with the final few years before you retire. By having a “five-year-out” checklist, you can spot potential shortfalls and make adjustments while you still have plenty of time to turn things around. This proactive approach ensures you’re better prepared when the big day finally arrives.

The five years before you officially hang up your hat provide the perfect opportunity to sit down with your financial advisor, scrutinize your current situation, and make any necessary tweaks to your plan.

For example, in the final years before retirement, many financial experts advise shifting a greater portion of your investments to safer assets like bonds. Sure, they might not offer the high returns you’d get from riskier investments, but they’ll help protect your hard-earned savings if there’s a stock market crash a year before you’re set to retire.

The main goal of this checklist is to help you answer the all-important question: Am I ready to retire? And if the answer is no, what loose ends do I need to tie up so that I am ready?

If you’ve been diligent in your planning, you might just need a few minor tweaks. But if there are gaps in your preparation — or if you haven’t started planning yet — you’ve got some work to do. These final years are about evaluating your readiness and making any necessary financial adjustments to ensure a comfortable and timely retirement.

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Below you’ll find a checklist of the six crucial steps you need to take as you approach these final years before retirement. Whether you’re well-prepared or just starting, these steps will guide you toward a financially secure and fulfilling retirement (and help you sleep better at night).

1) Figure Out Where Everything Stands

As you inch closer to retirement, it’s essential to get a clear picture of your financial landscape. Start by creating or updating your retirement plan. Whether you're starting from scratch or revisiting an existing plan, understanding the full scope of your current financial situation is crucial.

(Once you have your plan in place, come back and review it at least once a year. Think of it as an annual financial check-up. Regular reviews help ensure your plan aligns with your evolving goals and needs.)

Retirement planning tools are your best friends here. Use retirement calculators or comprehensive digital planning tools to test your plan. These can help you determine if you’re saving enough and provide personalized results. And don’t forget the value of a professional touch — consulting with a financial planner can provide clarity, especially if you have specific plans like relocating or starting a business in retirement.

Take a hard look at your savings. Make a list of each account you have and how much is in it. be sure to use real, up-to-date numbers. Don’t just guess how much you have in your 401(k); login to your account and look it up. Evaluate how much you’ve saved and how much more you need to save in the coming years to meet your goals. If you’re on pace, great! Enjoy sleeping peacefully. If you’re behind, it’s time to look at how you can adjust your plan to reach your goals, whether that’s cranking up your 401(k) contributions or pushing your retirement date back a few years to give your portfolio more time to compound.

Speaking of investments, give your portfolio an annual review to ensure it still matches your retirement timeline and risk tolerance. As you approach retirement, you might need to adjust your asset allocation, diversify your investments, and establish a regular rebalancing schedule to keep everything in line with your financial strategy. You’ve made it this close to the finish line; you don’t want to trip in the final stretch.

Feeling good? Go the extra mile and “stress test” your nest egg by looking at a few potential scenarios (market crash a year before retirement, 10% inflation rate for a year, diminished inheritance you were expecting) and figuring out your odds of still retiring on time. This could give you some additional insight on where to allocate extra funds or how to balance your portfolio for greater odds of success.

2) Turbo-Charge Your Savings (If Necessary)

Do your retirement savings need an extra boost? If you’re over 50 — and if you’re only five years out from retirement, you probably are — you qualify for “catch-up contributions,” which means you can ear mark another $7,500 for qualified employer savings plans like a 401(k). If you’re already maxing out your annual contributions, this extra amount can kick your savings into high gear; for 2024, you can contribute up to $23,000, with an additional $7,500 catch-up contribution if you’re over 50, making it a total of $30,500.

Don’t stop at your employer accounts. Look into contributing to traditional IRAs or Roth IRAs, where you can save up to $7,000 plus a $1,000 catch-up contribution. And if you’re eligible, Health Savings Accounts (HSAs) are another great option for additional funds. They offer tax advantages for future healthcare costs, with contributions of up to $4,150 for individuals and $8,300 for families, plus a $1,000 catch-up if you're over 55.

And remember, there’s no limit on how much you can save in regular brokerage accounts. If you’ve got extra funds, these can serve as an additional savings vehicle, giving you more financial flexibility in retirement.

3) Start Thinking About Social Security

Social Security is a significant part of many retirement plans, so understanding how and when to take it is crucial. While you can start taking Social Security as early as age 62, your benefits increase the longer you wait, up to age 70. Delaying benefits can result in a higher monthly income, which can be incredibly beneficial over a long retirement.

But deciding when to take Social Security isn’t a one-size-fits-all decision. It depends on your overall financial situation, including other income sources, life expectancy, and your spouse’s needs. Generally, waiting until full retirement age or later can provide a higher benefit, but the right timing varies for everyone. It’s worth spending some time to evaluate your personal factors and possibly consulting with a financial advisor to make the best decision for your situation.

So, even if you’re five years out from the traditional retirement age of 65, you only have two years to decide whether you’re going to start taking Social Security benefits at 62 or put them off until later.

4) Consider Your Tax Efficiency

Tax efficiency can make a big difference in your retirement planning. The best way to prepare for future taxes is to spread your savings across accounts with different tax treatments, such as pre-tax 401(k)s, after-tax Roth IRAs, and taxable brokerage accounts. This strategy, known as tax diversification, allows you to better control your taxable income in retirement.

Consider your current tax bracket when planning. In general, if you’re in a lower bracket today, maximize Roth savings, as your tax rate in retirement is likely to be higher. If you’re in a middle bracket, split savings between tax-deferred and Roth accounts to benefit from both tax treatments. And if you’re in a higher bracket, maximize tax-deferred accounts, since your tax rate in retirement is likely to be lower.

Roth conversions can also be a valuable strategy. Converting a traditional IRA to a Roth IRA can provide tax-free withdrawals in retirement, though you’ll need to pay taxes on the conversion. Make sure you have the funds to cover these taxes and consider the timing carefully to avoid pushing yourself into a higher tax bracket.

5) Jumpstart Your Savings for Future Healthcare Costs

Healthcare costs are a significant concern for many retirees. While Medicare covers many expenses, it doesn’t cover everything. When you’re planning your retirement budget, be sure to include premiums and out-of-pocket expenses, which can range from $450 to $850 per month depending on your personal circumstances.

If you’re eligible, saving in an HSA can help cover certain healthcare costs tax-free. At age 65, you can use HSA funds for non-medical expenses without a penalty, although you’ll owe ordinary income tax on these withdrawals.

Long-term care is another critical consideration. Approximately 60% of people will need long-term care, and the costs can be substantial. Consider long-term care insurance to cover potential expenses if you or your spouse require in-home care or a nursing facility.

Planning on retiring before 65? Explore health coverage options like the Health Insurance Marketplace, COBRA, private insurance, or your spouse’s employer plan to bridge the gap until Medicare kicks in.

6) Put the “Income” Puzzle Together

Knowing where your income will come from in retirement is essential. Identify all your potential income sources, including retirement, bank, and brokerage accounts, as well as Social Security, pensions, and annuities. For each one, you’ll want to understand when you can start taking distributions without penalties and how it will be taxed.

Developing a withdrawal strategy is crucial. Plan how to convert your savings into a reliable income stream. Consider a comprehensive strategy for spending, investing, and accessing your funds. Working with a qualified financial advisor or tax professional can help you connect all the dots in a tax-efficient manner.

As you near retirement, consider scaling back on investment risk and increasing your allocation to cash and bonds for money you may need soon.

Estimate your retirement spending by thinking about the kind of lifestyle you want versus what you can afford. Create a mock budget and compare it to your expected monthly income. You might even try living on your retirement budget for a few years before retiring to see how realistic it is and to identify any adjustments needed.

And that’s it!

I hope you walk away from this checklist feeling confident that you’re where you need to be. But even if you stumbled across some big holes in your planning, that’s okay! You still have plenty of time to adjust. And aren’t you glad you found them now instead of after you quit your job?

Regular reviews and adjustments to your plan can make a significant difference in achieving your retirement goals. By taking these steps, you can help ensure that you’re well-prepared for a secure and enjoyable retirement.