Get Retirement Ready: The 5 Things to Get Right Before You Retire
This is Part 2 of our three part series on retirement planning. Last episode we considered where your focus should be if retirement was 10 years away. This week we skip ahead and examine where your focus should lie with retirement five years out.
This is a significant shift. When retirement was still a decade away, the details were pretty fuzzy. But five years out things become much clearer. Retirement is visible on the horizon, which in many ways makes planning easier, but also, all the more important to get right.
Five years out from retirement is where things start to feel real. You can see the finish line. And the focus shifts from building wealth… to shaping how that wealth will actually support your life.
Retirement is no longer theoretical—it’s close. This is where the nature of planning changes.
1. Clarity on your goals
5 years out from retirement you should be able to get quite specific with your goals. Crucially, you need to know:
What will we spend each year?
On our current trajectory, is that viable long term?
This is where financial modelling becomes really valuable. Not because it predicts the future—but because it highlights risks. Initially we consider whether there is the chance of your money running out during your lifetime. Then we apply stress tests – what if your living costs prove higher than anticipated. Or if returns are lower than they were in the past? These stress tests provide insight into your level of resiliency, something that is crucial when planning for retirement.
Five years out from retirement you still have room to move. If working an extra year meant that you could do the travel that is a priority for you, or help the kids out as you would wish, there’s time at this point to make that recalibration.
2. Manage Sequencing Risk
If a 25 year old experiences a horrible stock market year where prices fall 30%, they just shrug their shoulders. Whatever. Their super balance is small, and it’s got plenty of time to recover.
But for you, at 5 years out from retirement, a 30% fall could be a big deal. I explored sequencing risk in detail back in this episode: Protecting your Nest Egg: Managing Sequencing Risk in Retirement . In summary sequencing risk is recognising that whilst a funds average return might be 8%, it can vary quite a bit from one year to the next. And some years are more consequential than others. A bad year right at the point of you exiting the workforce can reverberate throughout your entire retirement.
So consider:
Ensuring enough defensive assets for the early years
Avoiding being forced to sell growth assets in a downturn
3. Maximise Final Super Contributions
These last few working years are incredibly valuable. You’ve got:
Peak earnings
Strong cash flow – usually debt free, hopefully the kids have moved out
So this is often the window to max out your concessional contributions, and perhaps consider non-concessional contributions.
Our superannuation system is incredibly generous once you have retired and are in the pension phase. It makes sense to try and squeeze as much out of this system as possible. Currently, the most you can have in a tax-free pension is $2,000,000 per person. This is known as the transfer balance cap, and it’s a generous limit. Five years out from retirement, you should have a good read as to whether you will have headroom within this cap. If so, it would make sense to focus on getting what savings you can into superannuation as your retirement approaches.
4. Make Conscious Decisions About the Home
Your home is likely to be either your largest, or second largest asset, depending on how well you’ve gone building your super. Will you remain in your current home long term, or is a downsize on the cards? If a downsize is on the cards, when?
Specific provisions exist to get money freed up from a downsize into super, so this can be a great boost your retirement income.
5 years out from retirement, whilst you might not be ready to downsize yet, it would be reasonable to have a plan for what you will be doing on the housing front.
5. Think About Life After Work
This is something that is often overlooked. Retirement isn’t just a financial event—it’s a huge lifestyle shift.
What will your week look like?
What will give you purpose?
Sure you’ll travel, but you aren’t going to be travelling 52 weeks a year.
The people who transition best have thought about this early, and usually started to build out hobbies, join clubs, and build new friendships.
To summaries, with 5 years left until retirement, you should:
1. Clarity on your goals
2. Manage Sequencing Risk
3. Maximise Final Super Contributions
4. Make Conscious Decisions About the Home
5. Think About Life After Work
If you need help with your retirement planning, that’s exactly what we do at Guidance Financial Services. Learn more below.
