If retirement is about five years away, you’re entering one of the most important—and often overlooked—phases of financial planning. This window isn’t about starting from scratch or making dramatic changes. It’s about preparing what you already have so it supports you smoothly when your paycheck stops.
For many people, the 401(k) is the largest retirement asset they own. Knowing what to do with it before retirement can make a meaningful difference in taxes, income flexibility, and peace of mind later.
Here’s how to approach your 401(k) in the five years leading up to retirement—clearly, calmly, and without unnecessary risk.
1. Take Inventory of What You Have
Before making changes, start with clarity.
Ask yourself:
- How much is currently in your 401(k)?
- Is it all in one account, or spread across multiple employers?
- What type of 401(k) is it—Traditional, Roth, or a mix?
- Do you know how it’s invested?
Many people delay this step because it feels uncomfortable. But understanding where you stand is empowering—and essential before retirement decisions begin.
2. Review Your Investment Risk (Without Panicking)
Five years before retirement doesn’t mean you must abandon growth entirely—but it does mean risk deserves closer attention.
This is a good time to:
- Review your asset allocation
- Reduce extreme volatility
- Ensure your investments align with your comfort level
The goal isn’t to predict markets. It’s to avoid being forced into bad decisions if markets fluctuate near your retirement date.
3. Understand Your Employer Match and Contribution Limits
If you’re still working, this is the stage where small adjustments can add up.
Consider:
- Are you contributing enough to receive the full employer match?
- Are you eligible for catch-up contributions?
- Would increasing contributions slightly strain your lifestyle—or fit comfortably?
Even modest increases during these final working years can strengthen your overall retirement position.
4. Start Thinking About Taxes—Not Just Savings
One of the biggest mistakes people make is focusing only on account balances instead of after-tax income.
Five years out is a smart time to:
- Learn how 401(k) withdrawals are taxed
- Understand how future withdrawals may affect your tax bracket
- Begin thinking about coordination with IRAs, Roth accounts, or other income sources
You don’t need to make big tax moves yet—but understanding how taxes work now helps you avoid surprises later.
5. Decide Whether to Consolidate Old 401(k)s
If you’ve changed jobs, you may have multiple retirement accounts scattered across providers.
Ask:
- Would consolidating accounts make tracking and planning easier?
- Are the investment options and fees favorable?
- Do you value simplicity as retirement approaches?
There’s no universal right answer—but clarity matters more as retirement gets closer.
6. Learn the Rules Before You Need Them
Many retirees feel overwhelmed because they learn the rules after retirement, when decisions feel urgent.
Five years before retirement is an ideal time to:
- Understand withdrawal age rules
- Learn about Required Minimum Distributions (RMDs)
- Know what happens to your 401(k) when you stop working
Learning early removes pressure later.
7. Shift Your Focus From Accumulation to Use
The biggest mental shift happens here.
You’re no longer just asking:
“How much can I save?”
You’re beginning to ask:
“How will I use this money to support my life?”
That shift is healthy—and necessary.
Final Thoughts
Five years before retirement is not about drastic moves or chasing returns. It’s about preparation, understanding, and alignment.
When you take time to understand your 401(k) now, you give yourself something invaluable later: options.
Want Clear Guidance for the Next Stage?
If you’re approaching retirement and wondering what to do with your 401(k) and IRA—before and after you retire—you may find this helpful:
👉 The Essential 401(k) & IRA Retirement Guide
A plain-English guide to avoiding costly mistakes, understanding withdrawals, and making confident retirement decisions.
