Retiring in 5 Years? 10 Essential Steps You Need to Take

Retirement is a time we all look forward to -- the chance to enjoy life without the burden of work. But before you can embrace your golden years, you need to ensure that you've taken the necessary steps to retire comfortably.

If you're retiring in five years, you may be wondering what steps you can take to prepare for this next chapter in your life. The key is to give yourself enough runway to ensure that you're financially secure when the time comes. Here are some steps you can take to prepare for retirement in five years.

Five years out

When getting ready for retirement, start with these steps.

1. Build an emergency fund

The first step to ensuring a secure retirement is to build an emergency fund and cash reserves. Experts suggest having at least a year's worth of expenses in the bank to tap during market downturns in retirement.

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Start by setting a goal of saving 10% of your income every month in an account, specifically designated for your emergency fund.

2. Max out your retirement plan contributions

Starting at age 50, you can "catch up" on retirement savings by increasing contributions to your retirement savings accounts. Maxing out these contributions before retirement will yield more wealth for your future.

For 2023, individuals who are 50 or over can make annual catch-up contributions up to $7,500 for an IRA. Participants in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan who are 50 and older can contribute up to $30,000, and in SIMPLE IRAs, $3,500.

If you're eligible, consider contributing as much as possible to your 401(k), IRA, or other retirement accounts. If you have disposable income and have an eligible retirement plan, use a mega backdoor Roth IRA to save a significant amount of tax-free money for your retirement.

Four years out

Here are your next steps with four years to go.

3. Work with a professional

If you don't have one already, consider working with a financial advisor or accountant to go over your retirement savings plan. A professional can help you optimize your savings according to your needs and investments and firm up retirement cash flow projections.

4. Pay off debts

Eliminate as much debt as possible before retirement, particularly high-interest debts. You don't want to be contributing to debts in retirement, as it will detract from the experience. Decide if you want to pay off your mortgage and review other debt you might be carrying.

If you have debt, create a plan to pay it off using available resources before you retire. Additionally, don't forget to pay off any loans from 401(k)s or other qualified plans. Doing so may create a taxable event, which qualifies as ordinary income.

Three years out

Getting closer to retirement...

5. Budget for major purchases

If you anticipate needing a car, remodeling your home, or buying high-priced appliances, now is the time to make any significant purchases while you're still employed. This way, you'll either have these items paid off before you retire, or can adjust your savings and budget while still earning an income.

6. Educate yourself and get certified

It's also a good opportunity to look into certification programs or other training and educational programs if you plan on working part-time in retirement or turning a hobby into a business.

Two years out

Retirement is almost here; look to these steps next.

7. Update your estate plan

This includes updating wills and reviewing power of attorney, health care proxies, and beneficiaries. You'll want to update your estate plan, including wills and life insurance policies, regularly.

Create a trust if you want to protect assets and leave a legacy. You must specify your beneficiary and executor in preparing a comprehensive estate plan.

One year out

It's crucial to make these moves in the last year before retirement.

8. Verify financial assets and retirement income

At this stage, confirm all financial resources, such as pensions, profit sharing, Social Security, and other income. Pre-retirees should also call previous employers to see if they left behind any unclaimed retirement benefits and check with the state treasurer's office for any unclaimed property.

Do a retirement lifestyle dry run. This will give you a better idea of what life will be like and if you need to make any adjustments.

9. Confirm final finances and get all copies of important documents

Gather copies of all retirement plan documents so you can refer to them when you need to. It's easier to get any work-related documents while still employed. Keep copies in your home, as a digital format, or both for easy access.

Confirm your final financial compensation with HR, as well as your final paycheck, including the corresponding pay period, the amount, and the timeline for payment of vacation and medical leave balances. This includes obtaining up-to-date details about your 401(k), profit sharing, and balances in vested or unvested plans.

Additionally, verify your total balance of vacation and sick leave and consult the company's employment policy to explore the possibility of cashing in unused leave upon retirement. For pre-retirees who are relocating, provide human resources with your final mailing address to receive important documents like W2s.

Retirement day!

Congratulations, you made it!

10. Celebrate!

Don't forget to take time to celebrate the end of a successful career and the beginning of your golden years. Acknowledge your success in sticking with the plan and refocusing on new life goals.

Retirement is an exciting time, but it can also be daunting. These steps serve as a roadmap as you plan and prepare for retirement; consider them guidance for making the necessary mindset changes to support your retirement journey.

While specifics may vary, there's no doubt that giving yourself enough time to plan will increase the likelihood of achieving your financial goals and securing a happy and enjoyable retirement. Some of the items on the checklist should be ongoing tasks, such as building cash reserves and reviewing your portfolio. No matter where you are in the retirement planning process, it's never too late to start.