The five years before retirement: what to do, in what order.

A good retirement does not arrive on its own. You build it. And you build most of it in one short window, by deciding to act while acting still changes the result.

Most people drift toward the date instead. They keep saving, keep working, and take the pot as whatever it is when they get there. That is understandable. It also gives away the one stretch where your own decisions still move the outcome by years.

That stretch is the five years before you stop. By then the big forces have played out: how much you saved, how markets behaved. What stays open is what you do with what you have. When to take the tax-free cash. How much risk to carry into the first years of income. Which pot to draw first. What to do with the old schemes scattered behind you. Decide these well and you buy years of comfort. Leave them to default and you lose the same years.

So this is not a list of mistakes to avoid. It is a plan for the five years that are still yours, and the order to work through them. It is general information, not personal advice, but the order rarely changes.

i. The last five years are the ones you can still change.

For three decades, compounding and habit do the work. You pay in, time does the rest, and there is little to decide beyond keeping going.

The five years before retirement turn that around. The decisions get large, they land together, and several cannot be undone. That is the reason to act, not to hesitate. This is the last stretch where one decision of yours still moves the result by years.

The thing you take hold of is sequence risk. Two people with the same savings and the same average return can retire into very different lives, decided only by the order their good and bad years fall in. While you build, that order is out of your hands. In these five years it becomes the main thing you can plan around.

You spend thirty years building the pot. You get five to decide how long it lasts.

ii. Years five to four: take command of your number.

It starts with a number, and the number is not the size of your pension. It is the cost of the life you mean to lead: what you spend now, and what you want the freedom to spend later.

Most people have never written it down. Write it down now, while you can still act on the answer. List the essentials, then add what makes retirement worth reaching, like the travel and the help you want to give the children.

Then take charge of what comes in. Start with the State Pension, and pull your real forecast instead of guessing, because the rules keep moving. The State Pension age sits between 66 and 67 today, on a rise that reaches 67 for anyone born after early April 1977. You can get your own figure and date, free, from the government’s State Pension forecast.

Know the other moving line too. The earliest you can normally draw a private pension is 55 now, and 57 from April 2028. If you are five years out, that floor may be rising under you, so plan for the rules as they will be. Setting your income against your spending for the rest of your life is the real work of retirement planning, and it pays to start early.

iii. Years three to two: build the freedom to stay invested.

This is where sequence risk bites. While you pay in, a market fall helps you, because your money buys more. Once you draw an income, an early fall does the reverse. You sell units to live on, a fall makes you sell more of them for the same income, and the pot can thin so far before markets recover that it never catches up. A poor first few years can cost you the last few.

Cash is not the answer. It trades one risk for a worse one: the slow, certain loss of holding cash. The answer is room to move: a buffer of two to three years of income, held in cash or steady assets. When markets fall early in your retirement, you spend the buffer by choice and leave your investments to recover. That buffer is what keeps you in control while everyone without one sells at the bottom.

The rest stays invested. Retire at 60 with thirty years ahead and that money still has decades of growth left. The compound calculator shows what even a few more invested years add.

iv. The tax-free cash: make the once-only decision on purpose.

At retirement you can usually take 25% of your pension free of income tax, up to £268,275 across all your pensions for 2026/27. It is the most attractive number in the process, and the one most often taken on autopilot.

Taking it is not always right, and taking it with no purpose puts good money to work against you. Move cash out of a pension and into a savings account, and it leaves a sheltered, growing home for one where inflation goes to work on it at once. Give it a job first: clear a mortgage, fund a defined plan, bridge the years before other income starts. Then it can be one of your best moves. Take it because you can and decide later, and you have made yourself poorer.

Decide what the lump sum is for. Then decide whether to take it.

v. Take command of the moving parts.

Most people reach this point with old pensions scattered across past employers. Bringing them together can make a plan simpler and cheaper to run, but the aim is command of the parts, not a blind tidy-up.

Get two things right by checking, not assuming. First, some older pensions carry guarantees worth keeping, like guaranteed annuity rates or a protected pension age, and they vanish the moment you transfer out. Never give them up without advice; for larger defined-benefit transfers the law requires it. Second, the order you draw your pots is a decision of its own. Which pension, which ISA, in which year, can move your lifetime tax bill in your favour.

While you are in the paperwork, set the death-benefit nomination on every pension. It takes minutes, almost everyone forgets it, and it overrides your will.

vi. The year before: do everything the year still allows.

Twelve months out, the plan should be concrete and it should be yours. Know the income you want and where each pound comes from. Know how much tax-free cash you are taking, and what for. Know how the first two or three years of income sit, so a falling market cannot set your hand. Know which pot you draw first.

Decide too how much you want to carry alone. Many people carry it well. If you have a defined-benefit pension to weigh, a pot large enough that the tax turns intricate, or the resolve to get an irreversible set of choices right, a good planner multiplies your effort. You keep the decisions, and you reach the date knowing you left nothing on the table.

Small moves still change the outcome here in a way they never will again. So make them. Spent with intent, these five years are worth more than any decade of saving before them.

— Andrew

Andrew Daw is an independent financial planner based in Bath, working with clients across Bath, Bristol and the South West.