What Financial Steps Do I Need to Take if I Plan on Retiring in the Next 5 Years?
- 5 hours ago
- 9 min read
When it comes to retirement planning, the five-year window before retirement is one of the most consequential stretches of your financial life. It's close enough that mistakes can't easily be corrected, but far enough that smart decisions still compound meaningfully. A lot of physicians reach this point realizing they've been so focused on building a career and saving money that the details of actually using the nest egg they’ve built hasn’t gotten much attention.
Every week in our physician communities, we see colleagues who are thinking about FIRE (financial independence, retire early) or approaching retirement age asking some version of the same question: What do I actually need to do right now to be ready? Below, we cover 12 of the most important financial steps to take if you're planning to retire within the next five years, focusing on what members have said made them feel significantly more confident heading into their last few years of practice and towards years where they will no longer have a regular paycheck.
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Step 1: Calculate your actual retirement number to know if you're on track to retiring in 5 years
Many physicians go through their careers just saving as much as possible, and not knowing how much money they actually need to retire. The closer they get to years where a regular paycheck won’t be deposited in their accounts, the more apprehensive people get about if they’re “on track” to have the retirement that they want.
They then ask the communities, and find that numbers are all over the place (see the results of a poll on our communities about what doctors think they need to retire).
The thing is, you need to know what "on track" means for you, and this requires running the math on what your retirement will actually cost. This figure should not be a general estimate, but a grounded projection based on your expected lifestyle, location, healthcare costs, and how long you might need your money to last. A common starting framework is the 4% rule (spending no more than 4% of your portfolio annually), but it doesn't apply universally, especially for physicians who retire earlier than the general population and may have more than 30 years of retirement ahead of them.
Step 2: Max out every tax-advantaged account available to you (usually), and start thinking about if Roth conversions can be used strategically
For most of your career, you’ve likely been told to max out every tax-advantaged retirement account available to you. That generally holds true for most physicians who are anticipating being in a lower tax bracket once they’re no longer working. The five years before retirement are some of the highest-earning years of most physicians' careers. During this time, most doctors should contribute the maximum allowable amounts to your 401(k), 403(b), or 457(b), including catch-up contributions if you're 50 or older. If you have access to a backdoor Roth IRA, keep funding it. HSA contributions, if you're eligible, are also worth maximizing; that money rolls over, invests, and can be used tax-free for healthcare in retirement.
There’s an important caveat though, which may require talking to a financial advisor or an accountant to get more insight on. At this stage, you should be in a better position to know what tax bracket you’re going to be in during retirement based on required minimum distributions from your accounts as well as what other revenue will be coming in. If you are someone who has a very large balance in tax advantaged accounts that require distributions (non-Roth accounts, pensions, defined benefit plans, etc) and/or if you have developed other substantial revenue streams from things like cash flowing real estate, you may find yourself in a position where your tax bracket in retirement will not change, or where a large amount of required minimum distributions could actually result in some money being taxed at higher brackets or causing more of your Social Security income to be taxable or pushing you into a higher Medicare IRMAA tier.
While this is obviously a great position to be in, it’s worth thinking about strategically using Roth conversions. The fact is that at least in 2026, we are at historically low tax brackets for the upper tax brackets. With the amount of debt the country has and if political tides shift, many people wonder if tax brackets are going to go up in the future (and also believe the chances of tax brackets going down further are less likely). While nobody has a crystal ball, you may decide it’s better to pay the taxes on that money now rather than risk paying higher taxes on it later. Again, a good problem to have, but one that will require some strategic discussions with appropriate experts.
PSG resources:
Step 3: Reassess and gradually shift your investment asset allocation
Remember, the amount of risk you can take with your portfolio will change over the course of your careers, and most physicians will want to start being more conservative with their asset allocation as they approach retirement. This step doesn't mean moving everything to cash and bonds the day you decide to retire. But if your portfolio is still positioned the way it was at 40, it's time to revisit that. A significant market downturn in the year or two before or after you retire (what financial planners call "sequence of returns risk") can have an outsized impact on your long-term financial security. A gradual, deliberate shift toward a more conservative allocation over the five-year window reduces that exposure without sacrificing all of your growth potential.
Learn more about asset allocation.
Step 4: Pay down high-interest and variable-rate debt
Most people don’t want a lot of debt handing over their heads in retirement, as it can put ongoing drag or commitments on your finances at exactly the moment you likely want more flexibility and breathing room. Credit card balances, variable-rate loans, and any debt where the interest rate could rise all warrant a serious paydown plan in the years before you leave practice and no longer have incoming income to pay those bills or tolerate an unexpected rise in payments because of a rising interest rate.
Mortgage debt is a separate conversation (there's no universal right answer) but consumer debt above 6-7% is generally felt to be worth eliminating before you retire.
Step 5: Build a dedicated cash reserve for the transition
Even if your retirement accounts are in good shape, most people will want to start beefing up their emergency funds and cash holdings as they approach retirement. While many people only keep 3-6 months worth of expenses in their emergency funds while they’re actively earning money or have earning potential, it’s generally a good idea to have a bigger cash buffer when you’re drawing down on savings and investments to pay your living expenses. Many suggest having as much as 1-2 years of living expenses in liquid accounts. This is enough to cover unexpected expenses, as well as tolerate market downturns without having to sell investments at an inopportune time. While you don’t have to keep all the money in straight completely liquid cash, you might want to consider other short term investments like CDs as money you know you’ll be able to access without regret if market conditions sour.
Learn more about emergency funds and where to keep them.
Learn more about short term investment options.
Step 6: Develop a Social Security strategy
If you plan to claim Social Security, the age at which you start matters significantly. Claiming at 62 versus 67 versus 70 can result in a difference of hundreds of dollars per month, for life. Physicians who retire before 65 or 67 sometimes assume they'll claim early by default, but running the break-even analysis first is worth the time. Your health, other income sources, and spousal benefits all factor in.
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Step 7: Plan specifically for healthcare before Medicare
If you retire before age 65, you'll need to bridge the gap to Medicare eligibility. That could mean COBRA, ACA marketplace coverage, or a spouse's plan, all of which can be expensive and require planning.
This is one of the most underestimated costs for physicians who decide to retire early, and it can easily run $1,000-$2,000 per month or more for a couple without employer coverage, with most people assuming it will only increase given the direction of the healthcare landscape. Don't just assume this will work itself out. Price it out now and factor it into your retirement budget.
Step 8: Understand and consolidate your retirement accounts
Over a career spanning multiple employers or practice settings, you may have accumulated retirement accounts in several different places: old 401(k)s, IRAs, pension contributions. Consolidating these simplifies management, reduces the risk of forgetting accounts, and gives you a clearer picture of what you actually have. It also makes planning your withdrawal strategy considerably easier.
Step 9: Build a specific withdrawal strategy
Having a large retirement balance and knowing how to draw it down efficiently are two different things. The order in which you withdraw from taxable accounts, tax-deferred accounts, and Roth accounts affects your tax burden significantly over retirement. This is something worth modeling out carefully with a financial advisor well before you actually retire, not figuring out on the fly in year one.
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Step 10: Review and update your estate planning documents
Your will, healthcare directive, power of attorney, and beneficiary designations on all accounts should be reviewed and updated before you retire. Beneficiary designations on IRAs and 401(k)s override your will, so outdated designations (naming an ex-spouse, a deceased parent, or no one at all) can have serious consequences. This is a task that consistently gets pushed off as it’s tedious and feels non-urgent to most, so it's important to prioritize it.
Step 11: Model your income streams in retirement
Before you leave practice, map out every source of income you'll have in retirement: portfolio withdrawals, Social Security, pension, rental income, part-time work, a spouse's income. Knowing specifically where each dollar is coming from gives you much more confidence than a vague sense that "the math should work." It also surfaces gaps early enough to address them.
Step 12: Work with a financial advisor who understands physician finances if you’re feeling unsure
Some of you will be totally comfortable handing this yourself, whereas others may still be anxious about the transition - even if you’ve done everything ‘right’ financially. While you may have been on autopilot most of your career, planning retirement finances does get more complicated, as you can see above. It may be time to meet with a financial advisor and ensure you’re where you want to be, and be confident in your financial plan.
PSG resource: Financial Advisors for Physicians
Conclusion
The physicians who retire with confidence are almost always the ones who started planning earlier than others felt necessary. Five years is enough time to correct course, accelerate savings, reduce risk, and build the specific plan—not just a general sense of readiness—that retirement actually requires.
You don't have to do this all at once, and you don't have to do it alone. Start with the steps that apply most directly to your situation, get the right people around you, and treat retirement planning with the same rigor you'd bring to any other high-stakes decision in your career.
Related resources for physicians
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