Jacob Duke: Hey, friends, and welcome back to another episode of Retirement Answers. My name is Jacob Duke. I'm your host, as always. Today on the show, I want to talk about a concept that I kind of frame in my mind and call it the last five, first five. And what this is talking about is the last five years of your working career, and then the first five years of your retirement.
And why this ten year period is so critical to your financial, but also life success as you transition into retirement. Because what you do during these last five years of work and the first five years of retirement, those periods of time are gonna set the trajectory for you and your life moving forward. So today I wanna talk about what you can do during these two periods of time and how they kind of merge together, what you can do to optimize what you've worked really hard for and the opportunity in front of you once you do enter retirement. So today I wanna talk through the opportunities and things that you should be looking at and thinking about during these last five years of work and the first five years of retirement as you transition between those two things. But first, if you're new here, welcome to the podcast.
Welcome to the show. Again, my name is Jacob Duke. I'm a certified financial planner and the owner of River Tree Wealth, where we help people just like you plan smarter and retire better. And if you're wanting a copy of the important numbers data sheet that I often give away, you can check the link down in the description below. It's got all of the details for here in 2026 to help you make better tax decisions around where you save and how much you're saving and conversions or not, and all of the different information that you need to know to make good, decisions here in 2026.
So you can grab your free copy, click the link and it'll take you there and you can grab it. All right, so with that, let's go ahead and jump in. Okay, so the last five years, let's think about before we get to retirement, what are the things that you can be doing and thinking through as you get prepared for what's to come? Well, the first thing you have to do is shift your mindset just a little bit because throughout your career, you've kind of conditioned yourself to save, grow, invest. That's the process.
Like, can I just accumulate and grow a larger nest egg? And what this ends up doing is it actually ends up causing you to think once I have 1,000,000 or 2,000,000 or 3,000,000 or 5,000,000, whatever your number is, it kinda pushes you into this corner of thinking, once I have a certain number or amount of money, then I will be ready to retire. The problem is, is we always move the goalposts on ourselves, right? Remember whenever you thought once I have a million dollars, I'm gonna retire, but that was ten years ago. And now you see inflation happen.
You're like, man, actually I need $2,000,000 to retire based on how much things cost now. So the goalposts are always gonna be changing. So what you've gotta start doing here in these last five years is start shifting your perspective from how much you have to how much you can generate from an income perspective, from a paycheck perspective in retirement. That's the shift you have to start going through here in these last five years. Instead of saying, hey, I gotta have $3,000,000, you gotta say, how much do I need monthly?
And how much do I need to do that? Because maybe 3,000,000 is more than enough, but in your mind, you're stuck on 3,000,000, right? It's gotta have gotta have 3,000,000 before I retire, gotta have that much, but you can retire to 2,000,000 and had enough income off of that portfolio. So the shift here is a mental one, and you have to think, oh, I don't need a certain number or amount of assets on paper. What I really need is a certain paycheck or income every single month for the life I wanna live moving forward.
Now, the hard part there is knowing how much do I actually spend? And this is some homework that you can do in these last five years. What I encourage you to do whenever we start with a client is go back through the last twelve months and even better go back to the last twenty four months of your spending, right? Take your annualized spending amount, however much that is and leave all of the one offs in there, leave the the $10,000 AC repair or replacement, leave the car repair, leave those things in there because here's what we've learned about one offs. They always happen, they're a one off only because it's a different thing every single time.
So leave the one offs built in, that is your actual spending number, find your average monthly spending over the last twelve to twenty four months, and that is a number that you should kind of tentatively use is like, that's what I have been spending. But here's the maybe the little nugget or I guess tip that I wanna give you today. What I want you to do is whenever you start building out your retirement plan and kind of projecting things and saying, hey, what can we spend really? I want you to take your average spending number, and then I want you to add 20% to it. So take it and multiply it by 1.2.
Now Jacob, why would I do that? Everything I read online says, as long as I have some multiple of my income, say that I'm gonna be able to retire, or Jacob, about the 4% rule, or Jacob, if I, you know, it says, hey, I need 80% of my current income in retirement because, you know, retirement spending should go down. All of those things in my opinion are not correct, at least fully. What I've seen is that people typically end up spending more, especially early in retirement, because if you think about it, whenever you've been working and doing things all day and being important and valued, your opportunity to spend money is actually less. You have less time in the day to think about spending money.
Now, whenever you stop working and you have more time, guess what you're gonna naturally do? You're gonna naturally spend more money. If it's on small things, that's fine, but you're gonna naturally spend more. So what I want you to do is I wanna I want you to find the average normal spending over the last twelve to twenty four months. And I want you to say, hey, number one, is that viable in terms of an income amount I need in retirement for my portfolio and social security or pension or whatever income sources you might have?
Can I meet my current spending levels? And then I want you to add 20% more than your current spending levels to say, hey, maybe that's a realistic retirement spending now. It's actually going to be more than what I'm spending today. And so that's a good exercise to go through. And hopefully by doing this, you're going to start to establish this range.
Hey, I could spend X amount forever every single month, inflate that over time by let's say 3% as a cost living adjustment on it. And then that's totally sustainable. Or if I spend less than that, I'm gonna have more freedom and opportunity for the extra vacation when I want to. So you can kind of create your own flexibility perhaps by creating the sliding scale of, hey, I plan on spending the bare minimum $5,000 although I'd rather spend 10,000 a month just without thinking about it. So 10,000 is your normal spending, but 5,000 is your bare bones need to have number and you can add 20 to the 10,000 say, could spend up to 12,000.
Is that possible? Can I do that? So you've got to think the first two points here again, you've got to shift from how much money I need to have on paper and shift that to how much income can that generate. And then also you got to know how much expenses you are gonna have in retirement and then use that number to operate from there. Now, one of the other things that you have to look at here in these last five years before we kind of go over to the first five years, is you've gotta think about, how powerful is your portfolio.
Because if you're still saving a lot of money, which is not a bad thing, right? You're maxing out your 401ks, you're putting a bunch of money into brokerage accounts. The question I have for you there is, are you making a very big impact on your actual savings or could you use that money for something else such as debt pay down or living retired while you're working and going on the trips now while you still have your health? Or whatever it is, how could you use your money more efficiently perhaps now compared to simply adding more to the portfolio? Because if you got $3,000,000 or $2,000,000, guess what?
Adding 20,000 to that is fine, that's great. But you can make $20,000 in a day in the market, right? That's just 1% of 2,000,000. So then you could think, oh, well, I get a 10% return, make $200,000 just by not doing anything, that's what my portfolio did. So your portfolio, the growth rate and the compounding rate on your portfolio is now much more powerful and how much you're actually saving to the portfolio.
So you can start to think what if I started putting these different savings amounts in different places and using them in a different way compared to just building up more of a nest egg? What if I did other things with that that could benefit me further? So that's another thought for you is how can you start changing or shifting where you're saving and how much you're saving? Is there a better use of those funds compared to going into your 401 ks or any other retirement savings account? Also, as you go through this and you start to say how much money I need in retirement, you've got to begin to shift your portfolio because nothing would be worse than whenever you get to two months out of retirement, the market drops 40% and you were a 100% stock when that happened, right?
Now your portfolio is not as high, you lost 40% of the value. And now you say, well, I can't retire because just bad timing. It's like, well, we could have fixed that two years ago if we had slowly transitioned and actually started building out your buckets. I'm not gonna get into that today. I've done episodes on it.
But if we can find a way to start slowly transitioning into your cash bond and stock buckets based on your income expectation or needs in retirement, then we can start eliminating that sequence of return risk of retiring at the wrong time. Now, is actually important, especially once you're in retirement, but I'm a big fan of getting this situated and ready before you ever clock out and say I'm done, because we don't know when that big market crash is going to happen. And I don't want it to be at the wrong time right before you decide to walk out the door. So that is important as well. You've got to start transitioning your portfolio from a growth focus to more of a preservation with controlled growth, so that you can meet your income or expense needs once you are in retirement.
And then finally here on the last five years, you've got to really consider what are you going to do in retirement? So think of retirement is not what you're retiring from, but what are you retiring to? And this is sometimes one of the hardest parts for people in your situation. You've been working and saving and doing everything right, and it's kind of become who you are in in many ways, and you don't know what you are without your career. Guess what?
That's okay. That's normal. That means you gave everything you had, you've done a great job. The hard part is shifting it from being important and needed and valued and a full schedule every single day going into kind of nothingness, like unlimited time and the ability to do what you want. I would encourage you in these last five years to start thinking about that seriously.
Hey, what does retirement really look like? How big of a mental or emotional or like a psychological transition is that going to be to go from working full time, and then to say, I'm gonna do nothing and figure out what to do with all my time. That's a hard shift for a lot of people. And so what I would say is these last five years of work, start trying out things, try the new hobbies and say, can I do that once a week? And start piling these things on top of each other, maybe I play golf one day, pickleball one day, I wake up every morning and go for a run or a jog or a walk, and maybe on Thursdays I go to breakfast with a friend, like what are the things that you could do and maybe start doing them while you're still working to see if that's what you really would enjoy.
So, this is maybe the most important part of the whole equation, because if you don't retire to something and know what that is, who cares how good your financial plan is, you're gonna be miserable anyway, right? So the financial side is absolutely important, but the personal and the human side is perhaps more important because that is what the ultimate goal is, retiring and enjoying a life that is fulfilling for you. So those are some things that you should think about in the last five years of work. So let's talk about some of the things you should be focused on in the first five years of retirement. And this is where the rubber meets the road.
This is when you have a plan, right, for what you're gonna do, but this is when you gotta execute. Because a plan is great, but it's only as good as its execution. So I want you to know what you're gonna do and write it down. I want you to know what you're gonna do when the market drops 30% year one of retirement. What's your plan for that?
How are you gonna cope with that issue whenever it's an internal, emotional, mental, psychological problem? Hey, I just retired, gave up my income so that I can go enjoy life, but now I can't go enjoy life because I'm worried because the market's down 30% and I lost a bunch of my money. How do you deal with that? What's your plan for it? Right?
That's part of the the last five years we've prepared for it, but how do we actually execute once we are in those moments? And this is where a written plan predetermining what you will or will not do is so crucial because sequence of return risk that is on everyone's minds as well. Hey, I've got $2,000,000, but a big drop in the market. I've got 1.6. Now I'm taking a larger percentage of my portfolio for my income needs every single month.
That is a major problem. And what happens in these five years, the first five years of retirement, that's gonna set the trajectory of the rest of your retirement. If you fail during these years, your chances of success throughout retirement are gonna follow that. So you gotta think about things like when do I take social security? Maybe I hold that in my back pocket until the big market drop happens, and then I can flip that on and take some of the weight off my portfolio and not have to rely only on that for my income.
Also, you can think about, hey, what is the best thing to do from a tax perspective? Should I be doing Roth conversions? How do I execute those conversions? Do I pay taxes out of cash or do I withhold that from the portfolio? What is my plan for health insurance?
How do I do that both pre 65 and post 65? You gotta think about where's my income going to come from during these first five years? And how does that impact my subsidies or lack thereof whenever I am pre 65 on a private health plan? Now, once you do get to 65 and you're on Medicare, you gotta think what do I get Medicare Advantage or Medigap or some might call it Medicare Supplement? Which options do I choose and how do I put that all together?
So these are the things in coordination with the last five years of work that you've gotta be thinking about during these first five years, but really this is the execution phase. This is where you've got to execute correctly, because even the best plan doesn't matter how good the plan is, unless it's executed correctly, it will not matter. So all this to say, these ten years, the last five of work and the first five of retirement, perhaps are the most critical to get things right, have a plan for and to be able to execute that plan extremely well, so that you can enjoy life. That's what this is all about. It's not about having only more money or saving as much as you can on taxes, those things are great, and we wanna optimize all of that.
But at the end of the day, if we have the best financial plan on paper and we can't execute it, it's not a good financial plan. So this is why a tailored plan to you and your specific needs and your specific situation is so important. So if you're someone who's Jacob, all of this makes sense, but I also maybe don't know exactly where to start or how to structure it, then you can reach out to us here at RiverTree. We're happy to help you, happy to see if we're the right fit with your retirement planning needs to partner with you and make sure all of this gets executed correctly. So if you'd like to have a conversation, you can apply to work with us using the link below.
And if we're the right fit, we'll talk about how that actually works. All right, thank you so much for tuning into this week's episode of Retirement Answers. My name is Jacob Duke. I'll talk to you next week. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal or tax advice.
Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.