The five to ten years before retirement demand a sharp change in strategy. This phase requires you to move away from aggressive growth investing and toward building income sources you can count on.
During this window, your priority shifts from chasing stock market gains to securing steady cash flow. Consider moving portions of your portfolio into bonds, dividend-paying stocks, and fixed-income investments. These vehicles typically offer lower returns than growth stocks but provide predictability. A typical allocation might lean toward 50-60% stocks and 40-50% bonds, depending on your risk tolerance and retirement date.
This is the time to map out your income sources in detail. Social Security, pensions if you have one, and retirement account withdrawals should all be quantified. Calculate your expected monthly or annual income from each source. The goal is ensuring your combined sources cover your essential expenses.
Review your investment fees during this period. High expense ratios compound into significant drains over time. Index funds and exchange-traded funds often charge less than 0.20% annually, while actively managed funds can charge 1% or more. Switching to lower-cost options can preserve thousands of dollars.
Pay down high-interest debt aggressively. Carrying a mortgage or credit card balances into retirement forces you to withdraw more from savings. Eliminating these obligations reduces the income you need to generate from investments.
Test your retirement budget before you stop working. Live on your projected retirement income for several months. This real-world trial reveals gaps in your plan while you still earn a paycheck and can adjust course.
Consult with a financial advisor or tax professional about withdrawal strategies. Pulling from traditional IRAs, Roth IRAs, and taxable accounts in the wrong order can trigger unnecessary tax bills. Strategic withdrawal planning saves tens of thousands over a 30-year retirement.
The five to ten-year runway before retirement is not the time for experimental