Many preretirees leave their investment asset mix alone until the day they retire and then consider making changes. That proved to be a disastrous strategy for those who planned to retire in 2008 and 2009, as they watched the stock market plunge more than 50% (and mush of their savings along with it).
Here are some guidelines for how to rejigger your investments five years before you retire to protect your income for the first five years in retirement -- and how to position the balance of your portfolio for growth for the next 25 years. This strategy works best for portfolios of $250,000 or more.
For a customized approach, use our calculator determine how much of your savings to consider moving to safer investments five years before retirement.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Five years before retirement
Step 1: Add up your current savings
List the value of all your retirement accounts
Step 2: See how much it will grow by retirement
Multiply by 1.28 (assumes 5% annual growth
Step 3: List monthly contributions
Include your contributions and any employer match
Step 4: Estimate future value of contributions
Multiply by 68 (assumes 5% annual growth)
Step 5: Project your total savings at retirement
Add the amounts in steps 2 and 4. To estimate how much annual income your projected savings would generate, multiply by 0.05. If that's not enough to supplement your Social Security benefits, see the accompanying article for ways to rescue your retirement.
Step 6: Determine the amount to protect now
Multiply the amount in step 5 by 0.22. This is how much this plan suggests you should transfer now to create income for your first five years of retirement. For example, if you have a $500,000 nest egg, set aside about $100,000 in a safe account that is not exposed to market risk. You can use a five-year CD, stable value fund, or five-year fixed annuity.
When you retire
Purchase a five-year immediate fixed annuity. Use the money you transferred to a fixed account in step 6. This will create an income stream for your first five years of retirement to supplement Social Security and any other retirement income. For example, a 65-year-old-man who used $100,000 to buy a five-year immediate fixed annuity would receive about $1,700 per month. To see how much income you could buy based on your age, gender and amount invested, go to www.immediateannuities.com.
Transfer 26% of your retirement fund balance to a five-year fixed account, such as a CD, bond or five-year fixed annuity. Aim for a 4% rate of return, without taking any market risk.
Keep remaining funds invested in a 50% stocks/ 40% bonds/ 10% alternative investments (commodities and real estate funds) mix, aiming for a 6% return. Use our tool to find the portfolio that's right for you.
Repeat these three steps every five years. That will ensure a steady stream of retirement income while always keeping a portion of your money invested for growth.
-
Stocks Keep Climbing as Fed Meeting Nears: Stock Market TodayA stale inflation report and improving consumer sentiment did little to shift expectations for a rate cut next week.
-
Your End of Year Insurance Coverage Review ChecklistStop paying for insurance you don't need and close coverage gaps you didn't know about with this year-end insurance review.
-
Crypto Trends to Watch in 2026Cryptocurrency is still less than 20 years old, but it remains a fast-moving (and also maturing) market. Here are the crypto trends to watch for in 2026.
-
457 Plan Contribution Limits for 2026Retirement plans There are higher 457 plan contribution limits in 2026. That's good news for state and local government employees.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2026SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, and up to $72,000 in 2026.
-
Roth IRA Contribution Limits for 2026Roth IRAs Roth IRAs allow you to save for retirement with after-tax dollars while you're working, and then withdraw those contributions and earnings tax-free when you retire. Here's a look at 2026 limits and income-based phaseouts.
-
SIMPLE IRA Contribution Limits for 2026simple IRA For 2026, the SIMPLE IRA contribution limit rises to $17,000, with a $4,000 catch-up for those 50 and over, totaling $21,000.
-
457 Contribution Limits for 2024retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2026retirement plans The Roth 401(k) contribution limit for 2026 has increased, and workers who are 50 and older can save even more.
