Why the 5 Years Before You Retire Can Make or Break Your Retirement, According to Emily Guy Birken
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
When retirement is still ahead of you, it often looms with mythic power as an ideal, easy time when you no longer have to work or carry as much stress as during your working years.
The closer you get, however, the more danger you’re in for making financial mistakes (typically through a lack of planning), according to finance expert Emily Guy Birken, author of the book “The 5 Years Before You Retire” and many others.
“Before you retire is the best time to think about retirement,” Birkin said on a podcast with CFP Jeremy Keil of Keil Financial. For a lot of people, retirement doesn’t become real until this time window, if you’re lucky, and for many others, not until after they already retire and discover their plans aren’t foolproof.
Road Test Ideas
These five years before you retire are a crucial time because they allow you to “road-test ideas” for retirement, Birkin told Keil. This is when you can actually practice living as you might after retirement, focusing on how you want to spend your time (in small doses), explore places where you want to live, lean into areas of interest and, of course, start to dial in your financial plans. The importance of these five years is that you still have time to pivot, she pointed out.
“It can be affirming to do this but people put it off because it feels overwhelming,” she said.
If your plans don’t seem like they’ll be ideal, you can change them before the actual end date.
How Are You Determining Your Numbers?
Birkin said in these five years prior to retirement you should be not just running on common assumptions about how much you need in retirement but actually crunching hard numbers so you don’t come up surprised or short.
It’s important to be looking concretely at your typical “day, week, month and year” expenditures and then being able to point to where you’re saving money concretely, she said.
It’s also a time to start reducing expenses, or planning to reduce them by the time you retire, and thinking about how to enjoy life in different, or more affordable, ways.
Decide On a Plan B
It’s also important in this five-year window to figure out a “Plan B,” she said. That means that if the first plan you strategize for is out of reach financially, you should ask yourself “What is the least you need to be satisfied?” Once you know what that is, by adjusting your expectations, you can still feel like you’ve succeeded in retirement.
Other Important Strategies
Birkin also broke down many practical steps in her book, such as the following:
- Maximize your current investments: Make sure you’re contributing as much as you can to the right types of investment accounts, getting employer matching and not making risky investments.
- Secure healthcare for the future: She emphasized that it’s important to understand Medicare thoroughly before you need to take it and also invest in long-term care insurance if you can afford it to cover what Medicare doesn’t. Also, if you plan to work for some time longer, get disability insurance to protect your earning power.
- Capitalize on pre-retirement opportunities: Generating as much additional income pre-retirement is important. From part-time or freelance gigs, additional revenue streams can beef up retirement savings.
The people who are most successful at achieving a retirement of their dreams are the ones who are actively planning for it during this five-year window.
More From GOBankingRates
