Retirement Planning in the 5-10 Years Before Retirement

Retirement is close enough at this stage to make decisions more specific, but there is still time to adjust savings, taxes, benefits, and investments before the transition.

Planning now becomes less about saving alone and more about understanding how income, investments, taxes, and benefits will work together once work ends. Changes made now may affect your first retirement year and the decades that follow.

Establishing the Planning Baseline for the 5-10 Year Runway

Retirement planning becomes easier when you have a clear starting point. Before making decisions about timing, withdrawals, or investments, define what your retirement needs to support and how today’s choices may affect future flexibility.

This baseline should connect expected spending, reliable income sources, and the level of support your portfolio may need to provide. 

Defining the Spending Picture that Retirement Planning Should Use

Your spending estimate needs enough detail to guide decisions while staying flexible. A realistic range helps test how much income your retirement plan may need to provide.

A useful estimate separates the major categories that shape future cash flow:

• Fixed expenses include housing, utilities, insurance, property taxes, groceries, transportation, and recurring bills.
• Lifestyle expenses include travel, dining, hobbies, entertainment, charitable giving, and family support.
• Irregular expenses include home repairs, vehicle replacement, dental work, medical surprises, relocation, and major purchases.
• Inflation-sensitive expenses include health care, housing, premiums, and term care-related costs that may rise over time.

This estimate will likely change as retirement gets closer and your plans become more specific.

Estimating the Future Role of Portfolio Withdrawals

Once your spending estimate is in place, compare it with dependable income sources available or likely to begin later. The uncovered amount becomes what your portfolio may provide.

The remaining gap becomes the planning target for future portfolio withdrawals:

• Estimated Social Security income can be modeled using a tentative claiming age. Benefits generally begin at 62; waiting until full retirement age avoids early reductions, and delaying can raise benefits to age 70. 1
• A pension may cover part of your baseline spending, depending on the start date, survivor option, and whether the pension benefit includes inflation adjustments.
• Part-time work, consulting, business activity, or rental cash flow may reduce the need for early withdrawals.
• Cash reserves and other resources may support the first transition period.

This step clarifies how much retirement savings may become spendable cash flow and how much future retirement income may depend on withdrawals.

Preparing the Portfolio for Its Future Retirement Job

As retirement approaches, your investment strategy needs to account for more than growth. It also needs to support withdrawals, changing cash flow needs, and the possibility of market declines early in retirement.

Sequence-of-returns risk is the pressure created when poor market returns occur early or near retirement. Losses can cause more damage when withdrawals begin because shares may be sold before recovery.

A portfolio review should connect asset allocation, cash reserves, bond exposure, liquidity, account roles, and your investment mix. It should show how much stability the plan needs soon and how much growth it still needs later.

The goal is not simply to reduce risk. It is about finding the right balance between protecting near-term spending needs and maintaining sufficient growth for a retirement that may last decades.

Once the portfolio is aligned with your retirement timeline, the next step is deciding how different accounts can work together to support retirement income and tax planning. 

Please note: Becoming more conservative means matching the portfolio to income timing, risk capacity, and the number of years the money may need to last, while maintaining the needed growth exposure.

Organizing Accounts, Withdrawal Planning, and Tax Strategy Before Retirement Begins

This window is also the time to review how each account may support retirement income, taxes, and future flexibility. Different account types can create unique planning opportunities once withdrawals begin.

Balances may appear together on a single net worth statement, yet each account type can yield different tax and planning outcomes.

Reviewing How Each Account May Function in Retirement

Cash may support near-term needs, taxable brokerage accounts may offer flexibility around gains and basis, and a health savings account may help cover qualified medical costs. Pre-tax accounts can generate ordinary income, while Roth accounts can offer tax-free flexibility when the rules are met.

This review helps you avoid treating every dollar the same. Account type can influence Medicare exposure, withdrawal timing, cash flow control, and flexibility across retirement years.

Once you understand how each account functions, you can begin deciding which assets to spend first. 

Drafting a Starting Withdrawal Order

Creating a withdrawal order before retirement gives you a chance to test how different accounts, taxes, and income sources may work together. It also shows how your savings can be used flexibly.

A typical starting withdrawal framework may look like this:

• Cash Reserves: Cash can fund near-term spending without creating taxable income or forcing investment sales during a downturn.
• Taxable Brokerage Accounts: Taxable brokerage accounts may offer greater control over gains, losses, basis, and the timing of investment sales.
• Health Savings Accounts After 65: Qualified medical withdrawals, which include Medicare Part B & D premium expenses, are generally tax-free. After age 65, nonqualified withdrawals avoid the additional HSA non-qualified medical expense tax penalty but are generally taxed as ordinary income. 2
• Pre-Tax Retirement Accounts: IRA and 401(k) withdrawals may be used before required distributions begin, or when spreading taxable income across more years may reduce later tax pressure.
• Roth Accounts: Roth assets are often preserved for later flexibility because qualified withdrawals may provide tax-free cash flow when requirements are met.3

Please note: This order is only a starting framework. The right sequence may change based on Social Security timing, pensions, required distributions, Roth conversions, charitable giving, Medicare premium thresholds, markets, and actual cash flow needs.

Exploring Pre-Retirement Tax Planning Windows

The years before retirement may create tax opportunities that become harder to use once other income sources and required distributions begin.

Lower-Income Year Planning: Years with lower taxable income may create opportunities for tax decisions that are harder to make during peak-earning years or after retirement income begins.

Roth Conversion Planning: Those years may create room to convert portions of pre-tax assets before other income sources reduce flexibility.

Pre-RMD Income Planning: Measured withdrawals from pre-tax accounts before required distributions begin may spread taxable income across more years. Many IRA owners must begin RMDs at age 73, while some workplace plan rules may differ by employment status and plan terms. 4

Capital Gain and Loss Planning: Taxable accounts may create opportunities to realize gains, harvest losses, reset basis, or reduce concentrated positions in years when the tax impact is more manageable.

Medicare Premium Planning: Higher taxable income can affect future Medicare premiums for some retirees because income-related adjustments are based on modified adjusted gross income from an earlier tax year. 5

Once these planning decisions are in place, the final step is coordinating them around your intended retirement date. 

Coordinating the Decisions That Shape the Retirement Start Date

Your retirement date should be considered alongside the decisions that come with leaving work, including healthcare, income, benefits, and taxes.

Several decisions can shape how the first phase of retirement feels:

• Social Security timing can affect lifetime cash flow, survivor income, taxation, and pressure on withdrawals.
• Employer benefits may include workplace retirement plans, deferred compensation, stock compensation, group coverage, or lump-sum choices to review before finalizing your retirement date.
• Health insurance before Medicare matters for anyone considering early retirement, especially when premiums and out-of-pocket costs replace employer coverage.
• Medicare choices involve enrollment timing, prescription coverage, supplemental coverage, and possible income-related premiums.
• HSA and workplace benefits may include life insurance, disability coverage, and other healthcare benefits that change after employment ends.
• Debt and mortgage payments should fit the future budget before the paycheck stops.
• Beneficiary designations, powers of attorney, healthcare directives, and estate planning documents should be reviewed before the transition.

Turning the Final Working Years Into a Year-by-Year Planning Calendar

A retirement timeline helps break larger decisions into manageable steps. It also ties the transition to practical personal finance moves such as savings targets, debt reduction, cash reserves, and benefit deadlines. 

At five to ten years out, clarify the baseline, refine retirement savings plan targets, review investment risk, reduce avoidable debt, begin tax planning, and revisit retirement contributions.

At two to five years out, refine the target date, strengthen cash reserves, model withdrawals, review Social Security timing, evaluate healthcare changes, and shape the first withdrawal sequence.

In the final 12 to 24 months, confirm the first-year retirement lifestyle budget, choose your initial withdrawal sources, finalize benefit elections, review tax withholding, and prepare for life without a paycheck. Markets, health, family needs, tax rules, and wealth decisions may still shift before full retirement begins.

Planning in the 5-10 Years Before Retirement FAQs

1. What should retirement planning focus on 5 to 10 years before retirement?

Retirement planning should focus on the numbers and decisions that will shape your transition, including spending, income, investments, taxes, healthcare, and timing.

2. Why is the 5-10 year period before retirement so important?

This period gives you time to make adjustments while many of your retirement decisions are still flexible. You can refine savings, test income, and prepare for coverage changes.

3. Should I adjust my investment strategy before retirement?

Many people should review it during this window. The portfolio may need growth, liquidity, and stability to support withdrawals during weak markets.

4. When should I start planning my retirement withdrawal strategy?

Start before retirement begins. A draft order helps you test taxes, cash reserves, account sequencing, Social Security timing, and portfolio withdrawals.

5. Why does tax planning matter in the years leading up to retirement?

Tax planning matters because wages, withdrawals, Roth conversions, capital gains, Medicare premiums, Social Security taxation, and required distributions can interact. Early review can improve control over after-tax income.

6. What decisions should I coordinate before choosing a retirement date?

Coordinate Social Security timing, pension choices, health coverage, Medicare timing, employer benefits, debt payments, tax planning, cash reserves, and estate documents.

Building Your Retirement Plan Before the Paycheck Stops

The years before retirement are when small decisions can have a lasting impact. How you save, invest, claim benefits, manage taxes, and create income all shape what retirement may look like once the paycheck stops.

Our advisory team helps clients evaluate these decisions together, including income planning, investments, taxes, healthcare costs, Social Security, and employer benefits. 

As retirement approaches, we help you revisit the plan, adjust assumptions, and make decisions with a clearer view of what comes next. To prepare for this next stage, schedule a complimentary consultation with our team.

Resources

1. Social Security Administration, Retirement Age and Benefit Reduction
2. IRS, Publication 969
3. IRS, Publication 590-B
4. IRS, Required Minimum Distributions FAQs
5. Medicare, Fact Sheet: Medicare Costs

 

Oak Street Advisors, LLC is an SEC-registered investment adviser with offices in Mt. Pleasant, SC and Myrtle Beach, SC. Registration as an investment adviser does not imply any certain level of skill or training.

This article is for educational and informational purposes only and does not constitute individualized investment, tax, or legal advice. It does not constitute a recommendation or an offer to buy or sell any security or to adopt any particular investment or tax strategy. The information reflects general planning concepts that may not apply to your specific circumstances.

Tax laws and benefit rules are complex and subject to change; figures referenced are believed accurate as of the date of publication. You should consult your own financial, tax, and legal advisers before acting on anything discussed here. Examples and strategies are illustrative and results are not guaranteed.

Oak Street Advisors’ current Form ADV Part 2A, describing our services and fees, is available at adviserinfo.sec.gov or upon request.