3 Essential Steps When You Are Within 5 Years of Retirement

Timothy Brown |

By Timothy Brown, MBA, CFA®, CFP®, RICP®, AIF®

Many people think of age 65 as the standard retirement age. But if you are like most Americans in their mid-50s, the idea of sipping ice tea on the beach by age 60 or earlier is appealing. For many, this is the dream they are working the daily grind to achieve. But how do you take a dream of retiring within the next 5 years and transform it into a reality?

Here are 3 very practical steps you can take to begin making retirement something to look forward to instead of something you just wish for.  

1. Make Real Goals

In 1961 the U.S. President decided that we would attempt to go to the moon. Over the next few years, NASA made that happen, but not by just saying, “We are going to the moon.” They broke down the larger goal of going to the moon into bite-sized chunks. 

First, they needed a stable multi-stage rocket. Next, they needed to discover the math and engineer the first stable satellite into orbit. You get the idea; they had to set multiple intermediary goals to get to the larger goal of going to the moon.

If you want to retire within the next 5 years, you need to look at the big picture and then break it down into smaller milestone goals. An essential part of determining how much you will need to save in order to retire includes deciding what kind of lifestyle you want to have. 

To make appropriate retirement goals, you need to have a realistic picture of monthly expenses in retirement. House maintenance, travel and hobby expectations, health expenses, and other living expenses associated with retirement all need consideration. Make a budget goal for your retirement! Often this can be a range with one budget of “must-have” items and one budget with your ideal retirement income.

Once you have a retirement income goal, you need to make a plan for your income in retirement. When retiring early, there will be gap years before any Social Security or pension income begins, so you must have a plan for your income during these gap years. In the same vein, you will have medical insurance costs to navigate prior to when Medicare begins at age 65.

After careful consideration, you will reach a bottom line of how much money you will need in order to retire. For this discussion, let’s make up the number of $2,500,000. Then your list of sub-goals might begin to look something like this:

  • Eliminate all debts (including mortgage) prior to retirement to free up your income.
  • Max out your traditional or Roth IRA contributions, including annual “catch-up” contributions. The idea here is to contribute as much as possible to retirement accounts and other investments.
  • Wisely invest your 401(k) and other investments with your retirement goals in mind. 

By making smaller goals, you set benchmarks to begin more specific plans to move forward.

2. Make Real Plans

Anyone can announce that they will lose 20 pounds. They can tell their friends and family and post it on social media. What they have done is announce the desired outcome; but until they set an actual plan in place, they will never get where they want to go. 

For example, they could say, “I will lose 20 pounds by cutting out sugar and exercising 3 times per week.” By putting a plan in place, you create a path to begin moving forward. 

Here’s what some simple plans might look like for the sample list above: 

  • Determine exactly how much you need in order to retire.
  • Create a budget for today and then use this to make your retirement budget.
  • Use your discretionary funds (determined in the budget) to pay down any debts that you have, especially non-mortgage debt.
  • Create a net worth statement and use this to track your progress.
  • Budget 15% of your total income every month immediately to rapidly grow your 401(k) and max out your employer match. 
  • Create an investment policy and strategy and stick to this with discipline. 

If you put a straightforward plan in place, you can begin to make real changes that get your plans off of paper and into real life. 

3. Make Real Changes

Remember, it is not just about having the right strategies—it is about successfully executing them! This last step is the hardest and most important. You must commit to making real-life changes in order to see your desired outcome. It takes work and trade-offs to set yourself up for retirement, but you will be thanking yourself later when you have the life you’ve always dreamed about. 

One great way to help develop and maintain good financial discipline is through the aid of an advisor. This is one way we bring massive value to clients. We check in regularly to discuss client progress and hold them accountable for taking the right actions now so they can reach their dream retirement. 

If you are ready to make effective changes to get you successfully into early retirement, Brown Wealth Management is here to guide you. With decades of experience in financial advising, we have the expertise you need to help you set goals and make plans that are appropriate for your unique situation. 

Schedule a free introductory call today by reaching out to us at (952) 303-6715 or https://www.brownwealth.com/getting-started.

About Tim

Timothy Brown is founder and president of Brown Wealth Management, an independent, full-service wealth management company that helps individuals and families prepare for all of life’s milestones and events. With more than 20 years of experience in the financial industry, Tim strives to help his clients live happier, more fulfilling lives with the confidence that they have been good stewards of their finances. Tim has a bachelor’s degree in finance and accounting from the University of Colorado and an MBA from the University of Minnesota’s Carlson School of Management. In addition, he holds a rare combination of credentials: Certified Financial Planner™(CFP®), Chartered Financial Analyst™ (CFA®), AIF® - Accredited Investment Fiduciary™ (AIF®), and Retirement Income Certified Professional® (RIPC®). Tim has been recognized for his hard work by receiving the Five Star Wealth Manager award in both the Mpls.St.Paul Magazine and Twin Cities business magazine since 2013. 

When he’s not working, Tim enjoys spending time in Eden Prairie with his wife, Stacey, and their four children. You can often find him keeping busy by staying fit, pursuing a black belt in Tae Kwon Do with his three boys, assisting kids with Boy Scouts, and attempting to read two books per month. To learn more about Tim, connect with him on LinkedIn.