What To Do 1–2 Years Before You Retire

When retirement is still ten or fifteen years away, it can feel like a distant dream and something you’ll “really dig into later.” But when you’re one or two years out, retirement stops being abstract and starts getting real. Questions arise around your retirement date, income needs, and tradeoffs that can have big impacts on your success. 

This stage is less about drastic change and more about refinement. The choices you make now, often small ones, can quietly shape your taxes, cash flow stability, and flexibility for decades. Getting organized and intentional before you retire helps ensure that the first years feel calm and confident, not rushed or reactive.

Here’s what we encourage clients to focus on when retirement is just around the corner.

1. Lock In Your Retirement Date and Income Start Points

One of the most important (and surprisingly nuanced) decisions is choosing exactly when you’ll retire. Your target retirement date should account for more than just your age or energy level. Employer benefits timing, bonus or commission cycles, pension eligibility, and vesting schedules can all materially affect your net outcome. Delaying your retirement date by even one month can mean the difference between leaving money on the table or maximizing what you’ve earned.

From there, it’s critical to map out when each income source will or could begin.  The most common income sources in retirement are Social Security benefits, pension benefits, portfolio withdrawals, and part-time or consulting income. 

Not everything needs to start on day one. In fact, many retirees benefit from staggered income sources so they’re not locking themselves into permanent decisions too early or unnecessarily raising taxes.  Some income sources (i.e., Social Security and pensions) cannot be changed once they start, whereas others, such as portfolio withdrawals or part-time work, are more flexible.  Your goal is to create an income plan that covers your spending needs while maximizing tax efficiency to help your assets last as long as possible. 

You should also look closely at overlapping windows or periods when earned income overlaps with benefits or withdrawals. These windows can create tax spikes or affect healthcare eligibility and costs, especially before Medicare. Planning ahead allows you to decide whether those overlaps are helpful, neutral, or something to avoid.

Finally, identify a primary income “backbone” for the first 12–24 months of retirement. This could be a source of fixed income, such as a pension or regular withdrawals from your investment portfolio. Knowing exactly how your core spending will be funded early on reduces pressure and prevents high-stakes decisions during a vulnerable transition period.

2. Stress-Test Your Retirement Cash Flow

Before you retire, it’s time to dive into the details of your spending.  That starts by translating your budget into real categories: housing, insurance, travel, healthcare, hobbies, giving, and everyday living expenses. This process helps to identify costs that might change in retirement, along with clarifying key buckets of spending: 

• Non-negotiable: Housing, utilities, groceries, insurance, healthcare
• Flexible: Travel, dining, hobbies
• Optional: Big trips, major gifts, discretionary upgrades

This structure gives you levers to pull when markets change or unexpected costs arise—without guessing where adjustments should come from.  It also shows you how much room you have to adjust your spending if needed by determining your optional and flexible spending. 

Next, identify how much of your lifestyle is covered by guaranteed income sources like Social Security or pensions, and how much must come from your investment portfolio. That “gap” becomes the central planning problem your portfolio is designed to solve by determining an appropriate asset allocation that will provide stability for your funding needs. 

From there, stress-testing becomes invaluable. We run scenarios with our clients, such as:

• Higher-than-expected inflation
• A market downturn early in retirement
• Unexpected home or medical expenses

The goal isn’t to predict the future but rather to see where the plan needs cushions so small surprises don’t become major disruptions.

3. Organize and Simplify Your Accounts

Retirement is much easier to manage when your financial life is organized. Start with a clean inventory of every account: 401(k)s, IRAs, taxable brokerage accounts, bank and cash accounts, HSAs, and pensions. For each, note the balance, tax treatment, and any access rules. You are essentially making part of a simple balance sheet, which is something we do with all clients. Having this information in one place reduces stress and prevents costly mistakes.

We find that consolidation can be extremely helpful—but only when it improves clarity and control. In some cases, keeping accounts separate supports tax strategy or withdrawal flexibility. For example, if you have 4 different 401(k) plans from prior employers, you might consider consolidating in one IRA to make managing the allocation and distributions easier.  However, if you are planning to retire early, be aware that in most cases you will incur a penalty if you withdraw from your IRA before age 59.5.  In a 401(k), you can be penalty-free at age 55 if you have separated from service. The goal isn’t fewer accounts at all costs; it’s intentional structure.

This is also the right time to review beneficiaries across every account. Retirement is when we often discover mismatches between estate documents, account titling, and beneficiary designations. Aligning these ensures your plan works the way you expect when you die.  

Finally, identify which accounts are best suited for near-term spending versus long-term growth. This prevents you from being forced to sell the wrong assets at the wrong time, especially during market volatility.

4. Review Your Investment Risk and Allocation

As retirement approaches, it is important to review your current investment portfolio and allocation to determine if any shifts are needed.  You will be transitioning from building up funds to using those funds.  Risk should be re-evaluated with your retirement date and use of the portfolio in mind. A portfolio that depends on perfect market timing in the first few retirement years creates unnecessary vulnerability and stress. That doesn’t mean abandoning growth by selling all stock funds and investing in only bonds or cash.  Instead, you must align risk with real-world withdrawals to help ensure the safety of your income during a market downturn.

One of the biggest threats in early retirement is what’s known as the sequence-of-returns risk. The idea behind this risk is that we can’t control the timing of ups and downs in the stock market. If markets decline early while your withdrawals begin, the impact can be outsized on your portfolio over time. Aligning your withdrawal strategy with how your investments may behave in down markets helps reduce that exposure.

When we work with our clients, we determine what level of withdrawals they will need from the portfolio on top of any fixed income, such as Social Security and pensions. We then plan to hold 2-3 years of this liquidity need in the form of cash, money market funds, and defined maturity ETFs. This ensures that routine withdrawals aren’t dependent on selling investments during periods of volatility.  At this stage, your allocation should clearly reflect its job: steady funding and flexibility first, followed by long-term growth with a defined purpose.

For more on adjusting your investment allocation in retirement, check out our blog post “The Essential Guide to Asset Allocation for a Secure Retirement.”

5. Build a Tax-Aware Withdrawal Framework

Taxes don’t disappear in retirement, but they do change. A strong retirement plan looks beyond simple account balances and focuses on after-tax cash flow. That means clearly understanding how each bucket is taxed: pre-tax accounts, Roth accounts, and taxable investments.  For example, having $1 ML in a pre-tax IRA is not the same as having $1 ML in a Roth IRA.  The pre-tax IRA value will be fully taxed when you make withdrawals, while the Roth IRA value is completely tax-free in most cases. 

Many retirees experience “sweet spot” years early in retirement when taxable income temporarily drops. These years can be ideal for strategic moves such as Roth conversions or taking advantage of tax credits to lower health care costs.  It’s important to work with a financial advisor or tax planner to identify these opportunities.  

Coordinating withdrawals among account types helps manage tax brackets, reduce avoidable income spikes, and limit ripple effects on income-based costs. Without a framework, retirees often default to improvising withdrawals year by year, which can quietly increase lifetime taxes, leading to less money available for retirement.

It can be helpful to create simple decision rules: which accounts to draw from first, when to pivot, and how to adapt when circumstances change—so withdrawals feel intentional, not reactive.

6. Plan for Healthcare Before and After Medicare

Healthcare planning is one of the most overlooked retirement risks and one of the most important.

• Health Care Pre-Medicare: If you’re retiring before Medicare (age 65), you’ll need a bridge strategy that aligns with your timeline and avoids coverage gaps. You may have an option for retiree health care from your employer, or you’ll need to investigate the healthcare exchange in your state for a private plan. Income levels can affect both eligibility and cost, making your income plan in retirement even more important. 
• Medicare: When Medicare begins, choices should be treated as long-term planning decisions, not just paperwork. Whether you decide to select traditional Medicare with a supplemental plan or Medicare Advantage during your initial enrollment can have lifetime consequences.  It’s important to be informed about the basics of Medicare and what options are best for you. For more information on Medicare, check out our blog post “The ABCs of Medicare. “

Healthcare expenses should be built into your retirement plan realistically, including deductibles, prescriptions, out-of-pocket variability, along with dental and vision costs. Stress-testing for health-related curveballs ensures healthcare doesn’t become the budget item that forces other tradeoffs later.

7. Revisit Debt, Housing, and Large Financial Commitments

Approaching retirement can be a good time to evaluate any current debts or liabilities. Some debts improve flexibility, especially low-rate, fixed payments like a fixed-rate mortgage. Others create pressure, particularly variable-rate loans or short payoff timelines. Reviewing debt through a retirement lens helps clarify which obligations still serve you.

Housing should also be evaluated as a cash-flow decision, not just a lifestyle choice. Property taxes, insurance, maintenance, and accessibility all matter more when income becomes less predictable. Some folks are interested in changing their housing after retirement.  Downsizing or relocating can be powerful, but only when evaluated thoughtfully. Ongoing costs, tax implications, and changes to income needs should all be considered before making a move.

If major purchases or home projects are on the horizon, timing matters. Coordinating these expenses with income transitions can prevent forced withdrawals or unnecessary stress. Planning ahead on something like a car purchase allows you to slowly build up savings from fixed income or portfolio withdrawals and prevents you from taking a large taxable withdrawal all in one year.  

8. Align Estate and Protection Planning With Retirement

Retirement is the right moment to make sure your protection and estate planning is current.

Estate Planning 

Core documents—wills or trusts, powers of attorney, healthcare directives—should reflect who should act, how, and under what circumstances. These aren’t “set it and forget it” documents.  Make sure to do a thorough review of your own documents and see an estate attorney if updates are needed. 

It’s equally important to confirm that beneficiaries and account titling align with your estate plan. Without this follow-up, even carefully prepared estate documents won’t go according to plan. 

Risk Protection 

Insurance should also be reviewed with fresh eyes as retirement changes risk, income dependency, and protection needs. Retirement typically means no more need for disability or life insurance coverage, but long-term care insurance becomes an important item to consider.  

Make sure both your estate plan and insurance coverage support your goals.  Most people want continuity: the right people can step in, bills can be paid, and assets can be managed without chaos.

Preparing to Retire in 1–2 Years: FAQs

1. When should I finalize my retirement date?

Ideally, at least 12 months in advance—earlier if benefits or compensation timing is complex.

2. How much cash should I have going into retirement?

Often, 12–24 months of spending, depending on income sources and risk tolerance.

3. Is it better to pay off my mortgage before retiring?

It depends. Cash flow flexibility often matters more than eliminating low-rate debt.  For most people with a low-interest fixed-rate mortgage, it’s often better to maintain a mortgage even in retirement. 

4. How do taxes typically change in early retirement?

Many retirees see temporary dips in taxable income—creating planning opportunities such as Roth conversions.

5. Should investment risk be reduced immediately before retirement?

Risk should be adjusted intentionally, not abruptly, based on withdrawal timing and income needs.  This is an important conversation to have with your financial advisor. 

How We Help Clients Prepare for a Confident Retirement Transition

We help clients build a clear retirement road map—one that connects income sources, investments, withdrawals, and tax planning so the early years feel organized, not uncertain.

By creating a comprehensive plan, we design withdrawal strategies that support the lifestyle you want while limiting avoidable tax drag and reducing sequence of return risk. We help turn big retirement questions into actionable plans with checkpoints, so decisions are made proactively. 

If you’re within a few years of retirement and want clarity around your next steps, we invite you to schedule a complimentary consultation. A little planning now can make for a confident retirement! 

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