The Biggest Financial Mistakes People Make 5 Years Before Retirement

The Biggest Financial Mistakes People Make 5 Years Before Retirement

Five years before retirement is an interesting point in someone’s financial life.

You’re close enough that retirement finally feels real.

But you’re also far enough away that you still have time to fix things.

And that’s exactly why I think the five years before retirement are some of the most important years in your entire financial life.

Unfortunately, this is also when I see people make some of their biggest mistakes.

Not because they’re careless.

Not because they haven’t saved enough.

And certainly not because they’re bad with money.

It’s usually because they’ve spent 30 years learning how to save for retirement, but very little time learning how to actually retire.

Those are two completely different things.

Mistake #1: Treating Retirement Like a Date Instead of a Financial Decision

A lot of people have a retirement date in their head.

“I’m going to retire at 62.”

“I’m going to work until 65.”

“I’m done at 67.”

But here’s the problem:

Your birthday doesn’t determine whether you can afford to retire. Your financial plan does.

I would much rather see someone ask:

“What needs to be true financially for me to retire?”

than simply say:

“I’m retiring in five years.”

Maybe you can retire sooner than you think.

Maybe you need to work longer.

Maybe you can retire, but your spending needs to change.

Maybe you can retire if you make a few adjustments now.

The point is that five years before retirement, you still have options.

And options are valuable.

Mistake #2: Looking at the Account Balance and Thinking You’re Done

This might be the biggest one.

Someone looks at their 401(k), sees $1 million, and thinks:

“I’m good.”

But what does $1 million actually mean?

How much income does it produce?

How much are you going to spend?

How much will Social Security provide?

Do you have a pension?

What about healthcare?

Taxes?

Travel?

Home repairs?

Helping your kids?

Long-term care?

Inflation?

And what happens if the market drops 25% shortly after you retire?

A retirement account balance is a number.

Retirement planning is figuring out what that number can actually do for you.

That’s a very different exercise.

Mistake #3: Assuming Your Current Spending Will Stay the Same

I’ve seen people build retirement plans based almost entirely on their current monthly expenses.

That’s a good place to start.

It’s not where you should finish.

Your spending is probably going to change.

Maybe your mortgage will be gone.

But maybe you’ll travel more.

Maybe you’ll spend more on hobbies.

Maybe you’ll help your kids.

Maybe you’ll buy a second home.

Maybe healthcare costs will increase.

Maybe you’ll spend more during the first 10 years of retirement because you’re finally healthy, active and have the time to do everything you’ve been putting off.

Retirement isn’t necessarily the time when your spending goes down.

Sometimes it’s when your spending finally reflects the life you’ve been waiting to live.

That’s why I like to ask people a simple question:

What do you actually want your retirement to look like?

Then we can put a price tag on it.

Mistake #4: Taking Too Much Investment Risk

This one can be uncomfortable.

You’ve spent decades accumulating money, and now the temptation is to keep investing exactly the same way you’ve always invested.

But five years before retirement, your relationship with market volatility is changing.

When you’re 35 and the market falls 25%, you have decades to recover.

When you’re 63 and planning to retire in two years, the conversation is different.

That doesn’t mean you should sell everything and sit in cash.

In fact, being too conservative can create its own problems because retirement could last 25, 30 or even more years.

The question isn’t:

“How much risk can I tolerate?”

It’s:

“How much risk makes sense for the plan?”

Those are two very different questions.

Your portfolio should be built around the job your money needs to perform—not around whatever investment happens to be doing well this year.

Mistake #5: Getting Too Conservative

This is the other side of the coin.

I’ve seen people get five years from retirement and suddenly decide they need to put everything into cash, CDs or ultra-conservative investments.

I understand why.

You’ve worked your entire life to build the money, and now you don’t want to lose it.

But retirement isn’t a five-year event.

It could be 25 or 30 years.

You still have to deal with inflation.

If your money isn’t growing, your purchasing power can slowly disappear.

So the answer isn’t necessarily “take less risk.”

It’s take the right risk.

Some money may need to be stable.

Some money may need to generate income.

Some money may need to grow.

A good retirement portfolio has to account for all three.

Mistake #6: Ignoring Taxes Because “I’ll Figure That Out When I Retire”

This is one of the biggest opportunities I see people miss.

For most of your working life, the goal is usually pretty simple:

Put money into the 401(k), get the tax deduction and keep saving.

That’s a good strategy.

But eventually the money has to come out.

And when it does, taxes matter.

The five years before retirement can be an important time to start thinking about what your tax picture will look like after you stop working.

Maybe Roth conversions make sense.

Maybe they don’t.

Maybe you have taxable investments that should be handled differently.

Maybe you have a few lower-income years after retirement that create planning opportunities.

Maybe Social Security timing changes the equation.

Maybe you have large traditional retirement accounts that will create future required distributions.

The point isn’t that everyone should do a Roth conversion.

The point is that tax planning shouldn’t begin after the tax bill arrives.

The years around retirement can create opportunities that simply aren’t available later. 

Mistake #7: Thinking Social Security Is Automatic

Social Security is one of the biggest pieces of many retirement income plans.

Yet I still see people treat it almost like an afterthought.

“I’ll just take it when I retire.”

That’s not really a strategy.

When you claim Social Security can affect your lifetime income, your spouse and the way the rest of your portfolio is used.

Sometimes claiming earlier makes sense.

Sometimes waiting makes sense.

It depends on the household.

The important thing is to make the decision as part of the overall retirement-income plan, rather than making it independently.

Mistake #8: Forgetting About Healthcare

You can have the best investment portfolio in the world and still have a retirement problem if you haven’t planned for healthcare.

Especially if you’re retiring before Medicare eligibility.

Healthcare costs can become a major part of the retirement budget, and retiring early can mean figuring out how to bridge the gap until Medicare.

Even after Medicare begins, premiums, deductibles, prescriptions and other healthcare costs still need to be considered.

This is one of those expenses people often underestimate because they haven’t had to pay for healthcare in retirement before.

Five years before retirement is a good time to start putting real numbers around it. 

Mistake #9: Making a Big Financial Decision Because Everyone Else Is

This one has nothing to do with a spreadsheet.

Your neighbor retires at 58.

Your brother-in-law bought a rental property.

Your friend moved all his money into bonds.

Someone at work says the market is going to crash.

Someone else says AI is going to make the stock market double.

And suddenly your retirement plan is being built around somebody else’s life.

Don’t do that.

Your retirement is yours.

Your spending is different.

Your income is different.

Your assets are different.

Your family is different.

Your tolerance for risk is different.

There is no award for retiring the same year as your neighbor.

The goal is to retire when the numbers and the life you want actually line up.

Mistake #10: Waiting Until the Last Year

This may be the biggest mistake of all.

I hear people say:

“I’m five years away. I’ll start planning when I get closer.”

I actually think that’s backwards.

Five years is not a long time in financial planning.

But it is long enough to make meaningful changes.

If you’re saving too little, you still have time to save more.

If you’re taking too much risk, you have time to adjust.

If your retirement income doesn’t work, you have time to change the plan.

If taxes are going to be an issue, you have time to address them.

If you need to work another year or two, you have time to make that decision.

And if you’re actually in great shape, you may discover that you don’t have to wait as long as you thought.

That’s the beauty of planning early.

You still have choices.

The Five-Year Countdown Should Be a Stress Test

I don’t think the question five years before retirement should simply be:

“Do I have enough money?”

I’d rather ask:

“What happens if things don’t go according to plan?”

What happens if the market falls?

What happens if inflation stays higher than expected?

What happens if you live to 95?

What happens if healthcare costs more than expected?

What happens if one spouse dies first?

What happens if you want to help your children?

What happens if you want to spend more during the first 10 years of retirement?

What happens if you retire earlier than planned?

That’s what a real retirement plan should be able to answer.

Because the goal isn’t to predict the future.

It’s to be prepared for different versions of it.

This Is Where I Think Financial Planning Adds Real Value

I don’t think most people need a financial advisor because they can’t buy an investment.

They can.

The internet has made investing easier than it has ever been.

The difficult part is putting everything together.

Investments.

Taxes.

Social Security.

Healthcare.

Income.

Spending.

Estate planning.

Risk.

Debt.

Legacy.

And then making sure all of those pieces are working toward the same goal.

That’s where I believe financial planning becomes much more valuable than simply managing a portfolio.

Sometimes the biggest financial problem isn’t something you know you have.

It’s the problem you haven’t thought to look for yet.

Maybe you’re going to retire earlier than you thought.

Maybe you’re taking too much risk.

Maybe you’re taking too little.

Maybe you’re going to pay more in taxes than necessary.

Maybe you don’t actually need to save another $500,000.

Maybe you do.

You won’t know until you actually build the plan.

Five Years Before Retirement, Start Asking Better Questions

If you’re within five years of retirement, don’t just look at your account balance.

Start asking:

What do I want retirement to look like?

How much will that lifestyle cost?

Where will my income come from?

How much risk should I actually be taking?

What will my taxes look like?

When should I take Social Security?

How will I pay for healthcare?

What happens if the market falls right after I retire?

And perhaps the most important question:

What am I missing?

Because retirement isn’t simply the day your paycheck stops.

It’s the day your money starts having a completely different job.

You’ve spent decades working, saving and investing to get to this point.

The last five years shouldn’t be about crossing your fingers and hoping everything works out.

They should be about making sure the plan actually works.

That’s what financial planning is about.

Not just helping you retire.

Helping you retire with a plan you can actually sleep at night with.

Dream Bigger. Sleep Better.

Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

Colin Symons, CIO Lloyd Financial Group

Core PPI was 0.2% m/m vs. exp. 0.3%. The headline number was 0.4% m/m, as expected, but Y/Y was 5.4% vs. exp. 5.3%. Unrounded, Core was 0.16%, which is pretty good. Due to methodology changes, the parts that feed into PCE likely moved estimates a touch higher. Energy is the only real problem, unsurprisingly.

Jobless Claims were 206K vs. exp. 205K. Continued Claims were 1.774M vs. prev. 1.779M. Nothing exciting, there.

Existing Home Sales were 3.98MM, as expected. That’s -2% m/m. Affordability improved for a second month, though.

Oil was up 8% yesterday, to $104, as Iran keeps shooting at ships, among other things.

Gulf states are pushing on the diplomacy angle again, helping get oil back down to just under $100.

The Treasury ended up buying $5.3B of their up to $6B in purchases. Apparently, there were a lot of lowball offers. This helped drive 10Y yields up to 3Y highs.

Strong 30Y auction yesterday, but the selling continued anyway. We had a strong 10Y auction yesterday, as well, but the bond selling keeps going. TLT is inches from all-time lows. Similar to oil, the market is somewhat reverting yesterday’s extreme moves in bonds.

Oracle (ORCL) had strong earnings and guidance, along with a smaller cash burn, sending shares up 7%.

The long-awaited CPI comes out today.

Bottom line: CPI today, with extreme moves already reverting a bit.

Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

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