Ready to retire in 5 years? Here’s your checklist

Key Points

• Consider whether some form of work is part of your plan but avoid overreliance on post-retirement income that may not materialize.
• Track your spending now and create a Social Security account to model your future expenses and guaranteed income.
• Compare your projected spending with the 4% withdrawal rule to see if your savings align, and adjust contributions, investments, timing or spending if needed.
• Within 10 years of retirement, derisk your portfolio by tilting toward safer assets to protect against market volatility early in retirement.

Many of the best investing moves are made on autopilot. Just look at the track record of automatic payroll deductions and savings increases.

Other investing decisions, like a transition into retirement, require a more hands-on approach.

Christine Benz, Morningstar’s director of personal finance and retirement planning, recommends taking a preemptive approach as you get closer to retirement. The key is to visualize what you want your retirement to look like while you have enough time to make any adjustments you might need to get you there.

Here are five steps to take now if you plan to retire in the next five years:

1. Consider the role of work in retirement

Decide whether some kind of work is realistically part of your retirement plan. That income stream can make your retirement spending simpler, but it shouldn’t be the linchpin of your whole plan. That’s because you may not be able to work even if you want to.

2. Track your expenses

Understand what you’re actually spending today and see whether your spending will change over the next few years and into retirement. Getting a grasp of your future spending needs will help you determine whether your plan is on track.

3. Check up on Social Security

For most people, Social Security is a key source of income in retirement. Create an account on the Social Security website and make sure they have your correct information. This will let you model out different Social Security claiming dates using your own information.

4. Assess your current retirement savings

Look at your spending and subtract Social Security to get a sense of what you’ll need from your portfolio. If your spending doesn’t align with roughly 4% or less of your portfolio, you may need to make some changes. Consider saving more, investing differently, putting off your planned retirement date, or adjusting how much you plan to spend in retirement.

5. Derisk your portfolio

As you get within 10 years of retirement, you’ll want to make sure that your asset allocation can help protect your retirement plan from getting derailed by market volatility. If equity losses happen early on in your retirement, you can spend from your safer assets and wait until the market recovers to pull from your stock portfolio.

By thinking about retirement preemptively, you’ll have a better sense of when you want to retire and what you want it to be like. Plus, you can make any course corrections needed to make it happen.

___

This article was provided to The Associated Press by Morningstar. For more personal finance content, go to https://www.morningstar.com/personal-finance

Margaret Giles is a senior editor of content development for Morningstar.