The Retirement Red Zone: Why the Final 5 Years Decide Everything

Ready For Retirement

James Conole, CFP®

Education, Dividend Investing, Cash, Bonds, Investment Planning, Retirement, Business, Tax Planning, Stocks, Investing, Retirement Planning

4.8 • 793 Ratings

🗓️ 22 February 2026

⏱️ 14 minutes

🔗️ Recording | iTunes | RSS

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Summary

The final five years before retirement are not maintenance mode. They are leverage years. Small decisions made here can outweigh the previous twenty years of saving and investing. In this episode, James explains why this window is so critical. As your portfolio grows, your returns begin doing more of the heavy lifting than your contributions. That shift changes everything. Panic during a downturn, chase performance at the wrong time, or structure your investments poorly, and you may ne...

Transcript

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0:00.0	If you're within five years of retirement, this is not the time to coast. Small decisions that you
0:05.9	make over the next five years will have outsized impact on your ability to retire. So what you do is
0:11.8	going to drive whether you can retire with confidence or completely miss the boat. The good news
0:16.4	is if you get these five years right, it can add more benefit to your plan than the previous
0:21.1	20 years combined.
0:22.3	So let's walk through five principles that you need to understand to make the most of these
0:25.6	five years so you can ultimately make the most of your retirement.
0:29.6	Principle number one is something called the portfolio tipping point.
0:33.6	Let's look at an example of how this works.
0:35.2	So assume you're 60 years old and you want to retire at 65 and you know that you need to make these next five years work because you started saving for retirement at age 40. And you have saved $10,000 per year from age 40 to age 60 and you've achieved a 10% rate of return on your investments. Now, this is not a guarantee of what you're going to get, but this is a long-term historical average of the S&P 500, so I'm using it for illustration
0:57.6	purposes only. Well, when you first started investing, that $10,000 was your contribution.
1:02.1	It grew by 10%. $1,000 of gains. So the overwhelming majority of what's in your portfolio,
1:08.8	11,000 total by the end of year one, is coming from
1:12.2	what you put in. A very small amount is coming from what your portfolio grew by. We'll assume that
1:16.9	trend continues. You do that for 20 years. You now have $572,000 in your portfolio. If you save
1:23.8	another $10,000 per year, you've added to it, but keep this in mind. 10% return on your
1:30.3	portfolio of $572,000 is over $57,000 of growth. So in year one, the growth was a very small
1:37.7	portion of your overall portfolio balance. But in year 20, the growth is more than five times more
1:43.3	than what you are putting in yourself.
1:45.6	Here's the issue. Too many people, especially in those final five years, don't get the return
1:51.3	they should be getting. That happens for one of two reasons. Number one, they go through a market
1:55.3	downturn. We saw this in 2022. We saw this in 2020. We saw this in 2008. A market downturn happens. You're within a few
	...

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