After decades of building an individual retirement account (IRA), retirement may finally be within reach. However, the five years leading up to retirement are far from a passive countdown. Advisors, including Fidelity’s Frank Maltais, and researchers such as Wade Pfau have flagged this stretch as a period when portfolio decisions carry outsized consequences for the rest of retirement.The order in which your investment returns arrive determines whether your savings survive a full retirement. A portfolio’s 30-year outcome depends heavily on what happens in its first decade, accounting for roughly 77% of the final result, according to research from retirement scholar Wade Pfau at The American College of Financial Services.Asset allocation, contribution strategies, and tax planning all require careful reassessment before the transition from accumulating wealth through earnings to drawing income in retirement begins, Fidelity reported.Sequence-of-returns risk threatens your IRA the most near retirementA market downturn in your early withdrawal years forces you to sell holdings at depressed prices, not just temporarily denting your balance.That sell-off permanently shrinks the capital base available for recovery, even if the broader market rebounds sharply in the years that follow.A retiree withdrawing $50,000 annually depletes savings far sooner than expected if they face a 15% portfolio decline in the first two years.Someone who encounters that identical decline a decade into retirement ends up in a far stronger financial position, Schwab Center’s analysis showed.Frank Maltais, a certified financial planner and Fidelity Investments financial advisor, told CNBC that retiring during a market downturn can erode a retiree’s savings, particularly without adjusting withdrawal amounts.If you retire into a poor market, that can diminish your nest egg over time, especially if you don’t scale down your withdrawals during that declining marketThe base-case safe withdrawal rate is now 3.9% for portfolios holding 30% to 50% in equities, according to Morningstar’s retirement income research.That figure falls below the widely cited 4% rule because elevated equity valuations amplify the risk of destructive early losses.How Schwab and Vanguard model the pre-retirement IRA shiftMany savers approaching 60 still hold the heavily stock-weighted allocation they built in their 30s, and that inertia becomes a growing liability. Schwab Center for Financial Research models a conservative investor on a three-to-five-year horizon at roughly 20% stocks, 50% bonds, and 30% cash.More Retirement:Vanguard drops playbook on retirement incomeVanguard warns workers losing thousands in 401(k)sFidelity’s wake-up call on Social Security, IRAs, and 401(k)sVanguard’s target-date fund glide path reaches a 50/50 stock-to-bond split by the target retirement date after starting new investors at 90% stocks, according to Vanguard’s target-date fund documentation. Stocks still play a role because IRAs need to generate growth across a retirement lasting 25 to 30 years. Maltais recommends keeping one to two years of expenses in cash so retirees can avoid selling stocks during a downturn, he told CNBC.
Schwab and Vanguard recommend gradually reducing stock exposure while increasing bonds and cash as retirement approaches to manage investment risk.miniseries/Getty Images
Roth conversions offer tax control, but Medicare surcharges catch savers off guardIf your IRA is heavily weighted toward traditional pre-tax dollars, the years before retirement offer a narrow window to convert some of that balance. Roth conversion transactions jumped 41% year over year in the first quarter of 2026, according to Fidelity’s first-quarter 2026 Retirement Analysis.The One Big Beautiful Bill Act permanently extended reduced federal income tax rates, creating a favorable window for pre-retirees weighing Roth conversions. However, conversions come with a cost that many pre-retirees do not expect, known as the income-related monthly adjustment amount, or IRMAA. This Medicare surcharge is triggered when modified adjusted gross income exceeds $109,000 for single filers or $218,000 for joint filers in 2026, Kiplinger reported, citing the Centers for Medicare & Medicaid Services.Medicare calculates the premium using your income from two years prior, so a large Roth conversion in 2026 could trigger higher costs starting in 2028. Even after a conversion, taxpayers with sizable capital gains or MAGI above the threshold can still face bracket creep, Derrick Longo, a wealth advisor at Exencial Wealth Advisors, told Kiplinger.IRA catch-up limits rise to $8,600, and your withdrawal plan cannot waitSavers who are 50 or older can now contribute up to $8,600 per year to an IRA, up from $8,000 in the prior year.That total combines a $7,500 base limit with a $1,100 catch-up contribution for those 50 and older, which increased from $1,000 for the first time in years under a SECURE 2.0 Act indexing provision, according to IRS Notice 2025-67. Schwab’s catch-up guide notes that even a few years of maxed-out contributions can meaningfully expand a saver’s balance and open up additional room for tax planning.Funding a Roth IRA with those contributions also eliminates future required minimum distributions on that money, since Roth accounts are exempt from mandated withdrawals.Related: Dave Ramsey raises red flag on major IRA, Roth IRA decision