I’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 Retire 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.
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:
- I’m a big proponent of multiple streams of income as they can both help you get to retirement faster as well as be taken into retirement to make it more successful (if for nothing else, to provide some margin of safety). So my recommendation is to create several income streams well before retirement.
- In particular having a side hustle can be a real game changer as it can help you retire so much sooner than without one.
- If you want to see the impact of extra income streams, run your numbers with and without extra income using my ESI Scale Financial Independence Calculator.
- I like the list (mostly) that’s provided, but prefer my list of ideas for creating income and especially the ten best ways to earn money.
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:
- 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”).
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.”
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?
Bernd Doss says
After 42 years of service and Govt employment I’d had enough. However, I did one thing three years before hitting the eject button. Thinking about retirement, I also thought most about the loss of income, which caused developing a plan on how to live on less. Subsequently, we downsized all of our habits, increased our savings, and for the last two years before entering a very new experience, we lived on our expected retirement income , developing plans on how to exist in a new mode of personal comfort. A great teaching event, learning how to facilitate unexpected changes to our lifestyle and needs, and desires. Upon retirement, transition was smooth knowing that we were better prepared for the future. Unfortunately there are many more issues in retirement that have a greater impact on our lives, such as loss of spouse, or children that we never rationally think of during our lives while working. Thinking about what is ahead is a must needed required activity for everyone who anticipates a significant change of lifestyle.
Joshua Holt says
Sounds like a pretty solid plan!
I don’t know about needing to get a CPA though. I can understand why it’s not for everyone but I find that doing my own taxes is how you learn how the tax code works. To me it’s never been about discovering new deductions at tax time so much as it’s about learning how the tax code works and letting that shape your behavior over the next tax year.
Steveark says
Along the lines of a second act, I think for many of us, maybe most of us, a paid part time retirement gig is a necessity. It might be blogging for a few, though very few people can make enough money doing that to call it more than a hobby. In my opinion it needs to be something more mentally challenging than working at Home Depot or Starbucks, and needs to pay approximately what your career job paid, on an hourly basis or you may feel taken advantage of. Preferably with much less stress and much more control of how much and when you work. The time to figure this out is while you are still working, I have not seen any of my retired friends who didn’t set it up in advance succeed at it. I’ve seen them try but it is hard to get people to take you seriously when you are already retired, much easier when you are an employed professional. I started my retirement, eight hour a week, career the day I left my 9 to 5, five years ago. And when my retired friends ask me about it I can tell they envy the fact that I’ve got a work component in my life that they miss. I was always a show dog and its still fun for me to appear in the news, it keeps some of that element of celebrity I enjoy alive. Shallow me, I know, but at least I admit it.
Dave says
I prepare ours but sometimes hire a CPA to quickly review my work. He once found a minor thing I’d overlooked re: tax advantaged dividends from specific companies, but nothing significant. This way you get the advantage of learning the tax code with the benefit of a second set of eyes.
Lonelle Minesinger says
I am in the 3 – 8 years spot. If I retire at 3 (at 50 y/o) I get about $1,200 a month and medical. If I wait 8 (55 y/o) I get about $3,000 and medical. But I want out of California to be with my kids and grandkids, so it is a struggle. It may be the $1,200 and a second ‘job’. But I love the review (a lot of what I am already doing) to get me on the right track.
Apex says
Tax Accounting is not really accounting.
The fact that other CPAs recommend getting a CPA is not as telling as it might seem. A CPA is simply someone who is certified in accounting. That means they are good at adding columns of credits and debits and looking for inconsistencies.
Being a Tax Accountant has almost nothing to do with accounting or CPA-ness. It has to do with knowing all the arcane dark corners of the tax law.
It’s kind of like saying you know who recommends going to an oncology doctor if you have cancer? Other doctors.
This is not a commentary against using a CPA for your taxes. If your taxes are complex you probably should as should anyone who is a CPA and doesn’t work specifically in the individual tax field.
Cheryl Gill says
so how does one find a good CPA? I had one in Alabama and wasn’t impressed with the service and now live in Colorado? Is there a certain board or organization that “reviews” CPAs?
ESI says
Do you have friends who might have a good one?
I found a great one in MI (through a friend) and have kept her even though I now live in CO.
Cheryl Gill says
We don’t know many people here yet that we would trust to give a good referral. If you have any suggestions, please let me know. What a great state we live in!!
Mark Warner says
Three Friendly additions:
1) FIVE YEARS PRIOR – Of the three investment vehicles; (A) Brokerage acct, (B) 401K and/or IRA, (C) ROTH IRA; make a preliminary decision about order-of-withdrawal from these three sources. Give your future self the gift of reduced tax liability by understanding & planning. A fee-only FIDUCIARY financial planner can help with this, but it’s important to understand that most planners cannot give tax advice. CAVEAT: Future legislative changes to tax law will cause us all to rethink our strategies.
2) FOUR YEARS PRIOR – Evaluate the content within your (A) Brokerage acct, (B) 401K and/or IRA, (C) ROTH IRA. In step #1, above, you made a preliminary decision about order-of-withdrawal. Now use that info to structure investments so that you can maximize returns. EXAMPLE: If you plan to withdraw *last* from (C) ROTH IRA, then maybe this is the vehicle that should hold the majority of your equity investments. If so, then gradually (over the next four years) transfer investment within this vehicle. Allow the other two vehicles to hold your “cash cushion”.
3) ONE YEAR PRIOR – When visiting your dentist (ordinary cleaning), ask if they have recommendations for work that can/should be done *before* retiring.
ESI says
Some great suggestions here!
Marti Crocker says
Her book was the first retirement book I purchased and it started me on the right path. I renewed my library card and started reading other retirement books (Free of charge!). My favorite retirement book is How to Retire Happy – The 12 most important decisions you must make before you retire – STAN HINDEN – FOREWARD BY JOHN C. BOGLE
I agree with Mr. Warner’s comment on asking your dentist about recommended dental work or even elective cosmetic dentistry prior to retirement.
I enjoy your writing and I think you should definitely write your own timeline/countdown to retirement.
JJ says
I had to smile at the thought of knowing your retirement date 5 years in advance. I was planning to retire at 70, but then a change of management came that I didn’t like, so I made my decision and retired within the year, at 62. Words can’t express how happy I am that it turned out this way, but the 5 year countdown wasn’t an option.
Marti Crocker says
I am so happy it has worked out for you!
Actually, I was three years away from retirement myself when I bought her book and it kinda made me feel like I was already behind the power curve. After reading it I actually thought most people started a five year countdown! 😂😂😂 I’m one of those people that read for knowledge and I did feel better after I read a lot of other books and blogs. Margaret Manning has a nice site (Sixtyandme – mostly for women, but she has retirement content that applies to all.) which provided tons of tried and true advice. It’s really just your own personal journey in the end. I found Josh Scandlen on YouTube and made an appointment with him. I pulled the trigger a year later and have not looked back since. After working for the Federal Government for 30 years I’d had enough! 😅😅😅