Key Takeaways
- If you’re five years from retirement, maximize your contributions to your 401(k) and individual retirement accounts (IRAs).
- Take a good look at your current finances and the amount you’ve already saved to help you determine how much more you need to save in order to retire comfortably.
- Gradually adjust your investment portfolio away from riskier investments, like stocks, to more conservative investments, like bonds.
Five years might not seem like a lot of time to save for retirement, especially if you’re already in your late 50s or early 60s. Fortunately, it is enough time to adjust your retirement portfolio and amp up your savings. As you maximize your retirement accounts, like traditional or Roth IRAs, make a point of reducing your financial risk the closer you get to your retirement timeframe. Be aware that if you’re using a robo-advisor or a target-date fund through a large brokerage, your investments might automatically adjust.
Assess Current Financial Position
Before you can determine how much you need to save for retirement, you need to know where you currently stand financially. Start by calculating your net worth (including how much you already have saved for retirement) to get a complete picture. To find your net worth, simply add up all of your assets and subtract all of your liabilities.
With your current finances in mind, look at how much you’re currently contributing to your retirement accounts. Ideally, you have several types of accounts that you’re maxing out. These might include:
- Individual retirement accounts (IRAs): Anyone can open a traditional IRA, which is an investment account that you fund with pre-tax dollars, or a Roth IRA, an investment account funded with after-tax dollars. If you’re over 50 (and getting close to retirement), ensure you’re making the annual catch-up contribution.
- Brokerage accounts: These investment accounts don’t have contribution or withdrawal restrictions like a 401(k) or IRA. You can choose the mix of investments, including stocks, bonds, and exchange-traded funds, and adjust your portfolio as needed, making the investments more conservative in the last five years before retirement.
- High-yield savings accounts (HYSAs): Individuals can also fund these supercharged savings accounts, which offer significantly higher interest rates than those of traditional savings accounts. After you’ve maxed out your IRA or 401(k) contributions, put your savings into a HYSA.
Calculate Income Needs for Retirement
Now that you know how much you have for retirement, determine how much you need to retire comfortably. Take a moment to add up all of your potential expenses, such as:
- Housing
- Food and dining out
- Health care
- Taxes
- Travel, hobbies, and entertainment
- Emergency savings
- Debt
- Long-term care
If you’re working with a robo-advisor, it can easily consider these expenses to help you come up with a retirement strategy and create a portfolio to meet these needs.
Maximize Retirement Contributions
If you’re only five years out from retiring, chances are you’re in your 50s or 60s, so you need to adjust your retirement contributions. Instead of prioritizing riskier investments, make sure you’re maxing out your 401(k) and IRA contributions.
Since you’re most likely over 50, you can take advantage of the IRS catch-up contribution allowance. This gives you the opportunity to contribute an additional $1,000 to your IRA or $7,500 to your 401(k) annually.
| Retirement Savings Contribution Limits | ||
|---|---|---|
| Type of Account | 2025 Contribution Limit | 2025 Catch-Up Contribution |
| 401(k), 403(b), 457(b), TSP | $23,500 | $7,500 |
| Traditional or Roth IRA | $7,000 | $1,000 |
| Self-Directed IRA | $7,000 | $1,000 |
Choose the Best Investments
If you started saving for retirement decades ago, your investment portfolio probably included a mix of risky and conservative investments. However, as you get closer to retirement, your investments should be almost entirely in conservative, income-producing financial products.
- Dividend-paying stocks: Select stocks from large, stable companies that are expected to generate a return.
- Savings accounts and certificates of deposit (CDs): High-yield savings accounts and CDs provide guaranteed profit on the amount you put into the account.
- Bonds and U.S. Treasury Securities: These bonds, notes, and bills offer a low rate of return, but they’re fully backed by the U.S. Treasury, making them a safe investment.
It can help to choose a brokerage firm or robo-advisor, most of which have professionally managed mutual funds and automated portfolios. All you need to do is provide your income details and retirement timeframe.
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The Bottom Line
If you’re only five years from retirement, you’re probably pretty motivated to prioritize retirement investment. Continue to be proactive in saving and make those adjustments to your investment mix to protect your portfolio from unnecessary risk. If you’d like personalized assistance, work with a trusted financial advisor to ensure you’re on track to retire.