The people I find myself thinking about most in this work are not the ones who saved too little. They are the ones who saved a great deal, did nearly everything right for decades, and then arrived at the doorstep of retirement carrying a set of assumptions that no longer matched the terrain. They assumed that more savings meant fewer problems. In most ways that is true. But in a few specific and consequential ways, a large account balance can create complications that a smaller one never would have, and the five years before retirement are exactly when those complications tend to surface.
The most common version of this conversation starts the same way. Someone sits across from me, they are within a few years of stopping work, and they want to know if they are ready. The numbers look solid on the surface. The 401(k) has grown steadily, the house is paid off or close to it, and Social Security is waiting in the wings. What they have not yet seen is how those pieces interact once retirement actually begins, and what that interaction can cost them in ways that do not show up in a simple account balance summary. That is what this post is about.
The first thing worth understanding is that this period carries a specific financial risk that does not exist at any other point in your working life. It is called sequence of returns risk, and it refers to the danger of experiencing a significant market decline in the years just before or just after you stop working. When you are 40 and the market drops sharply, time is on your side. You keep contributing, prices are lower, and the recovery works in your favor. When you are 63 and the market drops sharply, the math is fundamentally different. You are either drawing down the account or about to, which means losses at this stage can have a lasting and disproportionate impact on how long your money lasts. The five years before retirement are the years when your portfolio is typically at its largest, which also means it is the point of maximum exposure. That is not a reason to panic. It is a reason to be intentional.
One of the most important conversations I have with people in this window is about their investment mix. Many pre-retirees are still carrying the same allocation they had at 45 or 50, simply because they never revisited it. That is understandable. Life is busy, the account kept growing, and there was no obvious reason to change anything. But the purpose of that money is shifting. It is moving from accumulation to distribution, and that shift requires a different kind of thinking. I am not suggesting that everyone near retirement should abandon growth entirely. In fact, in a world where retirement can last thirty years, staying too conservative too early creates its own kind of risk. The goal is balance, and finding that balance requires an honest look at where you are and what you actually need the money to do.
Social Security timing is another decision that looms large in this window, and it is one where the stakes are surprisingly high. You can begin claiming as early as 62, but your monthly benefit increases meaningfully for every year you wait, up to age 70. For many people, the difference between claiming at 62 and waiting until 67 or 70 is thousands of dollars per year for the rest of their lives. The right answer depends on your health, your other income sources, whether you are married, and a handful of other factors. What I can tell you is that the decision made here is largely permanent, and it deserves more than a quick calculation on the back of an envelope. I have seen people claim early out of impatience, or because they assumed they would not live long enough to make waiting worthwhile, and then spend twenty years wishing they had thought it through more carefully.
Medicare is something most people think about primarily as a health coverage question, and it is that. But it is also an income question, and that second dimension catches a lot of people off guard. If you retire before age 65, which is when Medicare eligibility begins, you need a bridge plan to cover the gap. Depending on your situation that might mean COBRA coverage, a marketplace plan, or coverage through a spouse. The premiums on that bridge coverage can be substantial, and they need to be factored into your retirement income math before you hand in your notice.
But the Medicare conversation does not end at 65. There is a cost structure built into Medicare called IRMAA, which stands for Income Related Monthly Adjustment Amount, and it means that higher income retirees pay significantly more for the same Medicare coverage than lower income retirees do. The premiums are tiered based on income, and the income figure the government uses is not your current year income. It is your income from two years prior. That two year lookback matters because it means decisions you make today, including how much you withdraw from retirement accounts, can directly affect what you pay for Medicare coverage years down the road.
The income figure used in the IRMAA calculation is called provisional income, and it is broader than most people expect. It includes your Social Security benefits, withdrawals from traditional IRAs and 401(k) accounts, interest income, dividends, capital gains, and even tax exempt interest from municipal bonds. That last one surprises people. Many retirees hold municipal bonds precisely because the interest is federally tax free, but that interest still counts toward provisional income for IRMAA purposes. If you received an inheritance that generated investment income, that counts too. The point is that provisional income can be considerably higher than what shows up on your tax return as taxable income, and IRMAA is calculated on the broader number.
Required minimum distributions add another layer to this. Once you reach the age when the IRS requires you to begin taking distributions from your traditional IRA or 401(k), those withdrawals are mandatory regardless of whether you need the money. They are also fully taxable as ordinary income, and they flow directly into your provisional income calculation. For someone who saved diligently over a long career, the RMD amount in later retirement years can be significant. Combined with Social Security, investment income, and other sources, it can push provisional income into an IRMAA bracket that meaningfully increases Medicare premiums. The person who did everything right, saved consistently for forty years, and arrived at retirement with a healthy account balance can find themselves paying hundreds of dollars more per month for Medicare than their neighbor with a smaller account, for exactly the same coverage.
This is where Roth accounts, and Roth conversions done thoughtfully, may become a valuable tool available in the five year pre-retirement window for those who find them suitable based on their individual needs. Qualified withdrawals from a Roth IRA do not count toward provisional income. They are not taxable, and they do not affect your IRMAA calculation. That means that building up Roth assets before retirement, or converting some of your traditional IRA dollars into Roth while you still have flexibility in your income, can give you a source of tax free income in retirement that does not trigger higher Medicare premiums. If you have a year before retirement where your income is lower than usual, or a stretch in early retirement before Social Security begins and RMDs kick in, that window is a common time to do Roth conversions. You pay the tax now at a potentially lower rate, the money grows tax free, and the withdrawals later do not count against you for IRMAA purposes. It does not make sense for everyone, but for people with significant traditional IRA or 401(k) balances, it may be a meaningful move to make in this stretch.
There is also the question of what retirement is actually going to look like. I do not mean that in a vague motivational sense. I mean it practically. How much will you spend in year one? Will you travel more in the early years and less later, or the reverse? Are there home renovations or family commitments on the horizon? Do you plan to work part time, at least for a while? These questions matter because your withdrawal strategy in the early years of retirement sets a tone that is hard to undo. The first five years of retirement carry their own version of sequence risk, and starting with clarity about what you intend to spend gives you far better control over how long the money lasts.
What I have found, working with people in this window year after year, is that the ones who navigate it best are not necessarily the ones with the most money. They are the ones who took the time to look clearly at where they stood, asked the right questions, and made a few deliberate decisions rather than letting inertia carry them to the finish line. The five year window before retirement is not a countdown. It is an opportunity, and the people who treat it that way tend to arrive on the other side with something more valuable than a account balance. They arrive with a plan they actually understand and can point to.
If you are within five years of retirement and have not sat down with someone to walk through these questions, I would encourage you to do that sooner rather than later. The decisions made in this stretch have a long tail. There is no pressure and no agenda, just a conversation to help you see where you are and what comes next. Get in touch and we can start there.
Disclosure: This content was generated utilizing the help of AI research and is intended for informational purposes only. Please consult a qualified professional for personalized advice.
Investing carries an inherent element of risk, including the possible loss of principal. There is no guarantee that any investment plan or strategy will be successful. Individual results may vary based on individual circumstances. Past performance does not guarantee future results. The strategies and concepts discussed are for educational purposes only and do not represent specific investment, tax, or estate planning advice. It is in everyone’s best interests to consult a tax, legal, or investment professional.