The 5 years before retirement are when most lifetime tax savings get locked in. The most important moves are: build a year-by-year retirement income projection, identify whether RMDs will create a future tax problem, model Roth conversions before age 73, decide on a Social Security claiming strategy, build a cash buffer for sequence of returns risk, review estate documents, and confirm healthcare coverage if retiring before 65. Decisions made in these five years shape the next 30 years of retirement.
Key Takeaways:
– The 5 year window before retirement is when income is still high but is about to drop, creating planning leverage that disappears in retirement.
– Roth conversions started 5 years before retirement compound for the rest of life.
– Social Security claiming strategy should be decided 2-3 years before claiming, not in the month before filing.
– A cash buffer of 1-3 years of expected withdrawals protects against sequence of returns risk in early retirement.
– Estate documents are often outdated by 10+ years when reviewed pre-retirement.
Why are the 5 years before retirement so important?
Three reasons:
1. Income is still high enough to fund pre-retirement tax moves like Roth conversions in some cases
2. Time remains to recover from any mistakes or market declines
3. Decisions made now lock in tax outcomes for the next 30 years
After retirement, options narrow. Brackets get set. Social Security claiming approaches. RMD
age approaches. The window closes.
Year 5: What should you do (typically age 60-61)?
Build the baseline. Get a full picture of every account, every income source, and every projected
expense.
Specific tasks:
– Pull every account statement and document balances and beneficiaries
– Run a retirement income projection showing RMDs, Social Security, and pension income at age 73 and beyond
– Identify the largest projected tax problem in retirement (usually RMDs)
– Estimate projected MAGI for years that will determine IRMAA exposure
Year 4: What should you do?
Begin the strategy work.
– Open a Roth IRA if one does not exist. The 5 year clock starts when funded.
– Begin tracking projected MAGI carefully. Two years before Medicare eligibility, IRMAA starts to matter.
– Review estate documents. Trusts, wills, and beneficiary designations are often 10 to 20 years old.
– Consider whether long-term care insurance fits the plan and is still available at reasonable cost.
Year 3: What should you do?
Test the plan.
– Build a year-by-year tax projection through age 85
– Model multiple Roth conversion scenarios. (see https://creativefinancialgrp.com/when-should-you-do-a-roth-conversion/)
– Decide on a preliminary Social Security claiming strategy for both spouses.
– Review life insurance with the widow’s penalty in mind. (see https://creativefinancialgrp.com/how-are-taxes-different-for-a-surviving-spouse/)
– Build a cash and short-term bond buffer to address sequence of returns risk.
(see https://creativefinancialgrp.com/what-happens-if-the-stock-market-crashes-the-year-you-retire/)
Year 2: What should you do?
Execute the early moves.
– Begin Roth conversions if they fit the plan
– Coordinate large income events (stock options, deferred compensation, real estate sales) to manage future IRMAA exposure
– Pre-fund any major one-time expenses that would otherwise come from taxable accounts in early retirement
– Confirm healthcare bridge strategy if retiring before 65. (see https://creativefinancialgrp.com/health-insurance-before-65-retirement/)
Year 1: What should you do?
Finalize the structure.
– Confirm Social Security filing strategy
– Decide on the 401(k) rollover or retention plan
– Finalize the first year withdrawal sequence (which accounts get tapped first, and how much)
– Confirm Medicare enrollment timing if applicable
– Stress test the plan against a major market decline in year one
How much can you give your family without tax consequences?
For 2026, the IRS sets the annual gift tax exclusion at $19,000 per person per recipient. A couple can give $38,000 per recipient per year to as many people as they want without filing a gift tax return.
For a couple with three adult children, that’s $114,000 per year transferred out of the estate, every year, with no federal tax consequence.
Above the annual exclusion, gifts count against the lifetime estate and gift tax exemption, which
is $15 Million per person in 2026. Most retirees will never use their lifetime exemption, but
tracking matters for estate planning.
Other ways to help family without tax consequences:
– Direct payment of medical or educational expenses to the provider (unlimited, no gift tax)
– 529 plan contributions (can front-load 5 years of annual exclusion gifts at once)
– Loans at the IRS Applicable Federal Rate (not a gift if structured properly)
– Helping with a down payment up to the annual exclusion per spouse
What tax moves are most important in this window?
Five tax moves stand out:
1. Roth conversions to fill lower brackets before RMDs begin
2. Capital gain timing in taxable accounts
3. Charitable bunching to maximize deductions
4. HSA contributions if eligible (see https://creativefinancialgrp.com/health-insurance-before-65-retirement/)
5. Coordinating year-of-retirement income to maximize current bracket optimization
What estate planning should happen?
Three priorities:
1. Update beneficiary designations on every retirement account, life insurance policy, and bank account
2. Review wills and trusts for current relevance (most are outdated)
3. Confirm successor trustees and powers of attorney are current
These updates take time and require attorney involvement. Starting 3-5 years out leaves room to handle them properly.
What insurance moves should happen?
Two priorities:
1. Long-term care insurance, if not already in place, becomes harder to obtain and more expensive every year past age 60
2. Life insurance review, especially with the widow’s penalty in mind (see https://creativefinancialgrp.com/how-are-taxes-different-for-a-surviving-spouse/)
Common Mistakes:
1. Waiting until the month of retirement to start planning
2. Skipping the year-by-year tax projection in favor of a single average
3. Missing the Roth conversion window because IRMAA wasn’t modeled
4. Not coordinating Social Security claiming between spouses
5. Letting estate documents stay outdated
Ready to take action?
Speak to the team: → https://creativefinancialgrp.com/cfg-start-here/
Frequently Asked Questions
When should I start retirement planning?
Ideally 10+ years before retirement, but the 5 year window is when most concrete moves get made.
Should I work with an advisor in this window?
Most households benefit from professional planning in this window because the decisions interact in complex ways across taxes, Social Security, healthcare, and estate planning.
Can I retire if I haven't done all this?
Yes, but the lifetime tax bill will likely be higher than necessary, and the risk of running out of money will be higher than necessary.
What if I'm only 2 years from retirement?
Compressed planning is still valuable. Focus on the highest-impact moves: tax projection, Social Security strategy, and cash buffer construction.
What if I'm 10 years out?
Continue accumulating but begin tracking projected income, taxes, and IRMAA exposure. The 5 year window will be much easier to navigate with this baseline in place.
About the Author
Kurt Supe is a CPA and Senior Partner at Creative Financial Group, an Indianapolis-based retirement planning firm. CFG has worked with retirees and pre-retirees for nearly 30 years, managing over 600M dollars in assets across 1,500 households. Kurt contributes to MarketWatch on retirement and tax planning topics.
This is not financial advice. Consult a qualified professional before making any financial decisions. Scenarios are hypothetical and for illustrative purposes only.