Why the Final Five Years Matter More Than Most People Realize
When retirement is finally within reach, it can feel like the hard part is behind you. You’ve spent years saving consistently, contributing to your retirement accounts, and building toward this next chapter of life.
The financial decisions you make during these years can influence everything from your retirement income and tax picture to healthcare costs and investment strategy. While there may not be time for major mistakes, there is still time to make meaningful adjustments that can improve long-term flexibility and confidence.
This is the time to become more intentional about your retirement plan.
Your Investment Strategy May Need to Shift
One of the biggest financial risks surrounding retirement is something called sequence of returns risk.
In simple terms, this refers to the impact of experiencing a major market decline right before or shortly after retirement, especially while beginning to withdraw money from your portfolio.
During your working years, market volatility may feel easier to ride out because you are still contributing and earning income. But retirement changes the equation. If investments decline while you are simultaneously withdrawing funds for living expenses, it can place additional pressure on your portfolio over time.
That does not mean abandoning growth altogether or moving entirely to cash. Instead, it may be time to review whether your investment strategy still aligns with your current goals, timeline, and comfort level.
For many investors, this stage becomes less about maximizing growth and more about balancing growth opportunities with preservation, income, and long-term sustainability.
Why Cash Reserves Become More Important
As retirement approaches, maintaining accessible cash reserves can provide valuable flexibility.
A common guideline is keeping approximately three to six months of living expenses in cash or cash equivalents. For example, if your expected monthly expenses are around $5,000, that may mean keeping roughly $15,000 to $30,000 readily available.
This cash cushion can help cover unexpected expenses and may reduce the need to sell investments during periods of market volatility. It can also help create a smoother transition into retirement by providing a greater sense of financial stability during those early years.
The right amount of cash will vary from household to household, but liquidity planning becomes increasingly important as retirement gets closer.
Healthcare Planning Should Not Be an Afterthought
Healthcare is often one of the largest expenses retirees face, which is why Medicare planning deserves careful attention.
If you plan to retire around age 65, understanding your Medicare enrollment timeline, expected premiums, prescription drug costs, and potential income-related surcharges becomes especially important.
For 2026, several Medicare-related costs are expected to increase, including adjustments to Part B premiums and prescription drug caps.
If you have contributed to a Health Savings Account (HSA), this may also be an opportunity to evaluate how those funds can be used strategically for future healthcare expenses and Medicare-related costs.
The earlier these conversations happen, the more planning opportunities may be available to you.
Retirement Is About Creating Income, Not Just Building Savings
As retirement gets closer, the focus often shifts from accumulating assets to creating a reliable income strategy.
That includes important decisions such as:
- When to claim Social Security
- Which retirement accounts to withdraw from first
- Whether Roth conversions may make sense
- How future required minimum distributions (RMDs) could impact taxes later in retirement
For example, claiming Social Security early may permanently reduce your monthly benefit, while delaying benefits could increase long-term income for some retirees.
Likewise, if most retirement assets are held in traditional pre-tax accounts, future distributions may create larger tax obligations later in retirement. In some situations, partial Roth conversions during lower-income years may help create additional tax diversification.
These decisions are highly personal, which is why retirement income planning should be coordinated with your broader financial plan.
The Bottom Line
The final years before retirement can move quickly, and the financial decisions made during this period often have long-term implications.
By reviewing your investment strategy, building appropriate cash reserves, preparing for healthcare costs, and developing a thoughtful retirement income plan, you can approach retirement with greater clarity and confidence.
Retirement is not simply about reaching a number. It is about building a plan that supports the lifestyle you want in the years ahead.
If you are within five years of retirement and would like to discuss your next steps, the team at FSA Wealth Partners would be happy to start the conversation.
The final years before retirement can move quickly, and the decisions you make during this window may shape your income, taxes, healthcare costs, and overall retirement lifestyle for years to come.
If you’re approaching retirement and want to build a more intentional plan for the years ahead, our team is here to help.
📞 Call us at (301) 949-7300
📧 Email questions@fsawealthpartners.com
🌐 Visit fsawealthpartners.com
Stay informed by subscribing to our Money Matters with FSA series for financial insights, retirement planning guidance, and timely market commentary.
FSA’s current written Disclosure Brochure and Privacy Notice, discussing our advisory services and fees, is available at www.fsawealthpartners.com/disclosures or by calling (301) 949-7300.
