The First 5 Years of Retirement Matter More Than You Think
For many people, retirement is imagined as a long, steady phase of life—one where the big decisions are made up front and everything else simply unfolds. In reality, retirement is anything but static. And while every year matters, the first five years often matter more than the rest.
Why? Because the decisions you make early and the market conditions you experience can quietly shape the durability of your retirement for decades.
Let’s talk about why those early years are so influential, and what thoughtful planning can do to improve outcomes.
Sequence-of-Returns Risk: Timing Matters
One of the most misunderstood risks in retirement is sequence-of-returns risk. This isn’t about whether markets go up or down over the long run, it’s about when those ups and downs happen.
Imagine two retirees with identical portfolios and identical average returns over 25 years. One experiences strong market returns in the early years of retirement. The other faces a market downturn shortly after retiring. Even if markets recover later, the second retiree may end up with significantly less money.
Why? Because withdrawals during down markets lock in losses. When you’re no longer adding money to your portfolio—and are instead drawing from it—the order of returns matters more than the average return.
This is why the first five years can be so critical. A poorly timed market downturn early in retirement can reduce the portfolio’s ability to recover, while strong early returns can create a cushion that lasts a lifetime.
Spending Flexibility Is a Powerful Tool
Another key factor in early retirement success is spending flexibility. Many retirees assume they need to lock into a fixed withdrawal amount from day one. In practice, flexibility—especially early on—can dramatically reduce risk.
The first years of retirement are often the most active and expensive: travel, hobbies, home projects, and experiences that were postponed during working years. That’s perfectly normal. But it’s also helpful to distinguish between essential spending and discretionary spending.
Having a plan that allows for temporary adjustments—spending a little less during market downturns and more during strong years can significantly improve long-term outcomes. Even modest flexibility in the early years can help preserve capital and reduce stress when markets are volatile.
Importantly, flexibility doesn’t mean deprivation. It means intentionality: knowing which expenses are negotiable and which are not and building a plan that supports both enjoyment and sustainability.
Early Decisions Have Long-Term Consequences
The first five years of retirement are also when many irreversible or hard-to-undo decisions are made:
When to claim Social Security
How aggressively to invest
How much to withdraw from portfolios
Whether to convert assets to Roth accounts
How much cash to hold versus invest
Each of these decisions creates ripple effects that can last for decades. For example, claiming Social Security earlier may increase portfolio withdrawals later. An overly conservative investment approach may feel safer but increase the risk of inflation eroding purchasing power over time. On the other hand, taking too much risk without a buffer can magnify losses when markets decline.
These choices are interconnected, which is why retirement planning works best when investments, taxes, income planning, and spending are coordinated—not handled in isolation.
Building a Strong Early Retirement Framework
A well-designed early retirement strategy often includes:
A thoughtful withdrawal plan that aligns spending with market conditions
Diversified income sources, not just portfolio withdrawals
Adequate cash reserves to avoid selling investments during downturns
A balanced investment allocation that supports growth while managing volatility
Ongoing tax planning, especially in the years before required minimum distributions begin
This framework isn’t about predicting markets. It’s about preparing for uncertainty and giving yourself options.
The Goal: Confidence, Not Perfection
Retirement doesn’t require perfect decisions—but it does benefit from informed ones. The first five years set the tone for how confident, flexible, and resilient your retirement will feel.
When early planning is done well, later years tend to feel calmer. Spending becomes easier. Market volatility feels less threatening. And financial decisions feel proactive instead of reactive.
If you’re approaching retirement or already in its early stages, this is a valuable time to review your strategy—not because something is wrong, but because the stakes are high and the opportunity is meaningful.
As always, if you’d like to talk through how your early retirement decisions may shape the years ahead, we’re here to help.
