Workers within five years of retirement face a critical planning window. Your peak earning years offer the last chance to build income streams that will sustain you through two or three decades of retirement.
The math is straightforward. If you retire at 65, you could need income until 85, 90, or beyond. Social Security alone typically replaces 40 percent of pre-retirement income for middle earners. That gap must come from somewhere.
Start by calculating your expected Social Security benefits. The Social Security Administration provides free estimates at ssa.gov. Claim at 62, and you receive less each month for life. Delay until 70, and your monthly check grows by 8 percent annually. For couples, this timing decision can mean hundreds of thousands of dollars over retirement.
Next, audit your 401(k) and IRA balances. If you're behind, catch-up contributions help. Workers 50 and older can contribute an extra $7,500 to a 401(k) in 2024, plus $1,000 extra to an IRA. Run the numbers through a retirement calculator to see if your current trajectory gets you there.
Pension holders should review vesting schedules and payout options. Some plans offer lump sums or monthly payments. An immediate annuity converts savings into guaranteed monthly income, which reduces sequence-of-returns risk in early retirement.
Taxable investment accounts deserve attention too. Long-term capital gains rates top out at 20 percent, while ordinary income reaches 37 percent. Harvesting losses now offsets future gains. Roth conversions in lower-income years before retirement can reduce required minimum distributions later.
Real estate income, dividends, rental properties, and part-time work also factor in. A 2024 Vanguard study found retirees with diversified income sources reported higher