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The Five Years Before You Retire 2I’m making my way through the most popular retirement books on Amazon (I select them by looking at the ratings and the number of comments a book receives).

Today I am posting about The 5 Years Before You RetireThe Five Years Before You Retire 4

written by fellow money blogger Emily Guy Birken.

I’m not sure I’ve ever met Emily but I see her in the FinCon Facebook group now and then, so I feel like I know her.

And a retirement book with over 220 reviews and averaging 4.3 stars is certainly worth checking out.

General Overview

I’ll give you my overall thoughts on the book in a moment.

For now, let’s hear what the book is about from the author herself.

Here’s how she begins:

How can you find out what you need to do in these last few years before retirement to make sure your life post-career is financially comfortable and fulfilling?

That’s what this book is for.

Rather than muddle through the myriad decisions you will have to make in the next few years, this book will help you to determine a clear, safe path. I’ll guide you through the various choices available and explain the elements that make up a secure retirement.

Five years from retirement seems realistic to me because that’s the point at which it really hits home to most people that they’re actually going to retire in the foreseeable future. Five years is also a good timeframe—as this book will make clear—for accomplishing the various things you kick the dust of your workplace from your feet.

In short, it’s what you’d expect from a book with this title.

Retirement topics covered along with timelines (by topic) of what tasks to complete — starting at five years from retirement and ending at retirement.

My Thoughts

I have mixed feelings about the book.

Here’s what I like about it:

  • I like the angle — the countdown to retirement aspect — and think it can be useful for many. I think of this book as helping you to come in for a smooth retirement landing. It begins on your final approach and takes you all the way to a safe touchdown.
  • The information is solid, especially for someone with limited financial knowledge or background.
  • It covers all the bases — income, expenses, Social Security, housing, and so on. For every issue related to retirement the book has a chart at the end of the chapter with what to do five years out, four years out, etc. which is great.

Here’s what I don’t like about it:

  • The book mostly contains a lot of what you’d find in other retirement books. Not much new information here for the more advanced group (which is the general audience for ESI Money). This book is meant more for those with a lower level of retirement knowledge IMO.
  • The advice is very basic and really just “ok” IMO. I realize it’s for a beginner-level audience and focused on five years out or less, but as you’ll see below, I think some of the suggestions could be better.
  • It’s only about the financial side of retirement. I wish it would have included how and when to address non-financial retirement issues (which are just as important as the financial ones) like how to spend your time, creating social groups, etc.

So overall I would say this book is a decent option for someone less advanced in retirement planning and who needs help landing safely into retirement. Even then, there might be better options (like some of the others I’ve already reviewed).

For more advanced readers, I would certainly recommend other books ahead of this one.

That said, the book does contain some perspectives I would like to share and comment on, so that’s what I’ll be doing today.

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The topics are rather random, so we’ll jump around. But the ones I’ll share are the topics I am interested in.

How to Catch Up for Retirement

Since the book is meant for those who are less sophisticated at retirement planning, it’s no surprise that it addresses the two topics of what to do if you’re 1) slightly behind in your retirement finances or 2) if you’re well behind. Based on the average American’s retirement savings, odds are that most people fall into one of these two categories.

We’ll get to the latter one in a moment, but for now I want to share the four basic tips the book offers if you’re slightly behind in your retirement finances — suggesting what you can do over your last five years to catch up.

Her thoughts:

1. Get your employer’s maximum contribution to your 401(k).

2. Make certain you are maximizing your retirement contributions.

3. Reduce your expenses.

4. Start a second income stream.

Personal finance 101 IMO. The reader should have been doing these things all along anyway.

Seriously, if you haven’t been getting your employer’s full contribution for the past 40 years, what have you been doing to get ready for retirement?

But of these four, I want to focus on the last item of starting a second income stream.

The book offers some ideas for doing this as follows:

  • Freelance writing for the internet
  • Blogging
  • Selling crafts
  • Designing and selling T-shirts
  • Pet sitting or dog walking
  • Tutoring
  • Baking
  • Mystery shopping
  • Sell your photography online

It’s also important to remember that you can find ways to extend the skills and knowledge you use day-to-day in your career to create a second income stream. Many professionals will find that they are in demand as consultants, both in their off hours before retirement and on occasion during retirement.

Lots of thoughts here:

Later on the book addresses what to do if you’re way behind in retirement savings. It starts with the following:

Before getting into the details of what you can do to prepare for retirement if you have insufficient savings, we should take a moment to talk about what you absolutely should not do: Take risk in order to catch up.

This is so true. Now is not the time to bet on penny stocks, buy a business you know nothing about, or invest in that “can’t miss” deal that cousin Vinny has which returns 20% “guaranteed”.

Of course there are better options — ones that require more effort (sorry!) but have a greater chance of success as well.

Here’s what the book suggests:

  • Option 1: Work Longer
  • Option 2: Generate Income in Retirement
  • Option 3: Cut Your Spending to the Bone
  • Option 4: Create a “Plan B” Retirement

Thoughts on these:

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  • Working longer is fine if the person is able. But so many HAVE to retire for one reason or another that simply working longer isn’t an option (at least in their current position). USA Today says that 60% of Americans have to retire sooner than they’d planned. So “work longer” often isn’t a viable option.
  • As I said above, having several sources of income is good for multiple reasons. This is why I would suggest that “develop other sources of income” as one of the main suggestions for at least five years out — if not 10, 15, 20, or more years before retirement.
  • IMO spending should be kept low (in proportion to income, to create an ever-growing gap between income and expenses) well before five years before retirement. That said, if someone hasn’t done this, there’s likely a lot that can be cut at this point.
  • Plan B might be something like retiring overseas where your retirement costs can be cut in half. Or it could be to opt for semi-retirement for several years (which is a blend of “work longer” and “generate income”).
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In the end, this section seems to make a great case for more savings, less costs, and more income well before five years out from retirement.

Which sounds like a GREAT idea to me! 😉

Get a CPA

The book is an advocate for getting a CPA to help you with your tax returns.

Her thoughts:

No matter how tax-savvy you are or how long you have handled your own returns, it’s a good idea to hire a Certified Public Accountant (CPA) to help you navigate the tax code as you near retirement and to help you minimize your tax burden in retirement. Not only will your CPA be able to stay on top of the constantly evolving tax code in a way that no layman can expect to, but she will also know of tax strategies that might never occur to you.

I just had to include this quote since I use (and recommend using) a CPA to do my taxes.

You know who else recommends using a CPA to do taxes? Other CPAs (even though they could easily do their own taxes). Think about that for a minute.

Paying Off Your Mortgage Prior to Retirement

The book weighs in on the debate of whether or not to have a mortgage in retirement with the following:

The first consideration regarding housing in retirement is whether you have paid off the mortgage on your current home. Traditional experts consider retiring with a mortgage to be a cardinal sin. There are several reasons for this:

1. Since your mortgage payment is likely your largest monthly expense, it makes sense to eliminate it before retirement to make your income go further.

2. You increase your tax burden if you need to take IRA or 401(k) withdrawals in order to pay your monthly mortgage.

3. Having your home paid off means that you have another large asset in your portfolio that is your free and clear.

But what if paying off your mortgage before retirement is not an option? Here’s what the book suggests:

So, if you are five years out from retirement and will not be able to have your mortgage paid off in that time, what are your options?

  • Accelerate Your Mortgage Payments
  • Start a Second Income Stream
  • Downsize

Do you notice a theme here with the second income stream? Sounds like creating multiple streams of income is a good idea well before retirement. Who could have guessed that? Ha!

So that’s it for my thoughts on this book. Has anyone else read it? If so, what’s your take on it?

What to Do Five Years Before Retirement

Just for grins and to get some other opinions I Googled “what to do five years before retirement”. Many of the articles were trash (I’m starting to get disappointed in what Google recommends for money-related topics), but I found a few at least worth mentioning.

Let’s begin with U.S. News. Here’s their five-years-out list:

1. Tighten up your budget.
2. Add catch-up contributions to your savings.
3. Meet with a financial advisor.
4. Fix up your house.
5. Pay off your vehicle and home.

Nothing earth-shattering here. But nothing horrendous either. Generally useful.

Next we move on to Barron’s:

Five years out: 1. Start building cash reserves, if you haven’t already, to tap during market downturns in retirement. 2. Take advantage of post-tax savings opportunities in qualified retirement plans.

Three years out: 1. Make major purchases while still employed. 2. For those who might want to work part time in retirement or turn hobbies into businesses, look into certification programs or other training now. 3. Pay off loans from 401(k)s and other qualified plans to avoid carrying debt into retirement and creating a taxable event which qualifies as ordinary income.

Two years out: 1. Review estate planning if not up to date, including updating wills, reviewing power of attorney, health-care proxies, and beneficiaries. 2. Decide whether to pay off the mortgage and review other debts. 3. Meet with a financial planner to review tax strategies and firm up retirement cash flow projections.

One year out: 1. Confirm all financial resources—pensions, profit sharing, Social Security, and other income. 2. Do a retirement lifestyle dry run. 3. Begin conversations with human resources for formal transition plans if necessary.

Three months out: 1. Gather copies of all plan documents including qualified plans, health-savings accounts, medical plans and other information before leaving. Those documents are easier to access while still employed. 2. Confirm with human resources final financial compensation. 3. Pre-retirees with employer stock in their qualified plans should consider taking advantage of net unrealized appreciation planning to reduce taxes.

I like this list better, specifically because it at least tries to address the non-financial issues associated with retirement. That’s why they suggest “doing a retirement lifestyle dry run.”

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Finally we have Kiplinger who offers the following:

First thing? Check in with Social Security.

Test the waters. If you’re planning to move when you retire, target several destinations and spend some time there after the summer tourists have decamped.

Get a reality check from a pro. Even if you’ve successfully managed your finances, this is a good time to sit down with a financial professional to make sure you’re on track to meet your retirement goals.

Plan your second act. Many boomers don’t really want to retire—they just want to get out from behind their desks and do something meaningful and different. If a second act is in your future, it’s not too soon to start exploring your options.

Consider phased retirement. If your employer allows you to cut back on your hours—with a more flexible schedule, for example, or by switching to a part-time position—you can get a better handle on your post-retirement lifestyle, along with what it will be like to live on a budget.

Review your life insurance. If you bought a policy years ago when your kids were younger, you may no longer have the need for coverage.

Take more risk off the table by lowering your exposure to stocks to 60% of your portfolio, with the rest in bonds.

Also, increase the cash cushion in your emergency fund so you have enough to cover one year’s worth of expenses in case a layoff or health issue forces you to retire early.

Again, these are “ok”. I like the “second act” part — many posts don’t address the non-financial issues associated with retirement, so at least this one takes a shot at it (like Barron’s does above).

After reading this book and looking at these articles, perhaps I need to write up my own list of “what to do ___ years before retirement.”

Of maybe it’s a “how to prepare for retirement” post and starts when you receive your first paycheck.

Anyway, what do you see as vital steps to take five years out or less from retirement?

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