Five Years Before Retirement: Questions Your Advisor Should Raise
Someone who has spent decades earning, saving, and building a pension can still arrive within five years of retirement without a clear retirement income plan. The accounts may be well funded, the mortgage may be nearly gone, and retirement may appear affordable. But a portfolio does not determine when employment income ends, which income sources begin first, how taxable income will be managed, or whether the surviving spouse can maintain the plan.
Pre-retirement planning is the work of turning a broad expectation of being ready into a practical operating plan. Not every decision needs to be finalized five years ahead, but choices with deadlines, lasting consequences, or implications for the rest of the household plan should be raised while there is still time to compare alternatives.
Make the Retirement Date Real
A retirement date is more than a lifestyle preference. Retiring at 62, 63, or 65 changes the final years of employment income, the timing of pension and benefit decisions, the period available for investments to grow, and the number of years the portfolio must support household spending.
It is understandable to focus on one preferred date. A stronger planning process tests a range of credible dates and identifies what changes under each one. This is not an argument that working longer is always better. Health, family priorities, job satisfaction, and the value of time are part of the decision. The purpose is to understand the financial trade-off before the date becomes fixed.
Consider a hypothetical Ontario couple, David and Sarah, both age 58. David works in engineering management and has a defined benefit pension; Sarah is a senior health-care administrator. They have approximately $2.2 million outside their home across registered accounts, TFSAs, and non-registered investments, and hope to retire at 63.
Using the same spending target and broad investment assumptions, their projected portfolio after the first five retirement years was approximately $2.7 million if they retired at 62, $2.9 million if they retired at 63, and $3.2 million if they worked until 65. The difference reflects both additional time for the portfolio to grow and fewer years of portfolio-funded spending.
That five-year comparison does not establish whether any date will support a full retirement. Spending, investment returns, pension terms, health, and family objectives could all change the answer. It does show why the retirement date should be treated as a planning decision rather than an assumption carried forward without analysis.
At this stage, an advisor should gather the documents that reveal both the available choices and their deadlines: pension statements, employee benefit details, compensation and equity-plan information, account statements, CPP estimates, estate documents, and beneficiary designations. The immediate goal is not to solve every issue. It is to identify what requires early attention.
Build the First Paycheque
When employment income stops, retirement income rarely begins from one source on one date. A pension may start at retirement, CPP can begin at different ages, OAS may begin at 65, and the remaining spending need may be met from registered accounts, TFSAs, non-registered investments, or cash reserves. Each source has different tax and flexibility implications.
For David and Sarah, their after-tax spending target at age 63 is approximately $155,000 per year. David’s pension covers part of that amount. The balance must be funded through a combination of government benefits and investment withdrawals.
The question is not merely which account to spend first. The more useful question is what the first five years of retirement should look like: which income is reliable, which expenses are essential, which costs can flex, how much cash should be available, and which account will fill each gap.
In one path, David and Sarah delay CPP until age 65 and use their non-registered account to fund most of the shortfall. Their non-registered account is projected to be about $562,000 at retirement and, after five years of withdrawals and assumed growth, has a little more than $150,000 remaining. In a second path, they begin CPP at 63 and fund the remaining need from a mix of registered accounts and TFSAs. Their non-registered account is left intact and grows to approximately $683,000 over the same period.
Neither approach makes the couple materially wealthier over that short period; their total portfolios remain very close. The assets are simply held in different places at age 67. That distinction can matter later because non-registered assets may offer useful flexibility for a large repair, travel, a family gift, or a year when taking a larger registered withdrawal would be unattractive.
Preserving the non-registered account is not automatically the objective. Large unrealized gains, ownership between spouses, a need to build cash reserves, and future estate considerations can all affect the appropriate sequence. A rule such as always spend non-registered assets first is not a retirement income strategy on its own. The income sources need to be modelled as a household system.
Plan Tax Across Years
For many high-income households, the instinct to defer tax has been useful throughout their working years. Once retirement begins, however, minimizing tax in the current year may create a larger and less flexible tax problem later. The relevant comparison includes the final working years, early retirement, the start of CPP and OAS, later RRIF withdrawals, and the income that could remain for a surviving spouse.
In the David and Sarah example, the coordinated path deliberately takes more taxable income from registered accounts in the early retirement years. At age 67, the model shows approximately $127,000 of household taxable income in the delayed path and approximately $152,000 in the coordinated path. The higher figure is not automatically a negative outcome. It reflects a choice to use some lower-income years before more income sources begin to stack.
This matters because registered accounts eventually become RRIFs. At age 71, the standard RRIF minimum factor is just over 5 percent and rises with age. More can always be withdrawn, but the minimum cannot simply be skipped. If CPP, OAS, pension income, investment income, and RRIF withdrawals are all active later, a household may have less control over its taxable income than it did in its early retirement years.
OAS should also be reviewed on an individual basis, not only at the household level. For 2025, the OAS recovery tax begins when an individual’s net world income exceeds just over $93,000, with 15 percent of income above that threshold recovered. In the example, certain income was split equally using a rough tax estimate, and neither path triggers OAS recovery through age 67.
That result does not establish that OAS recovery tax has been avoided permanently. It shows that, under the stated assumptions, the couple can recognize more taxable income early without crossing the threshold in those years. A full analysis would need to account for actual pension splitting, credits, deductions, capital gains, income ownership, and filing details.
The planning question is not how to produce the lowest tax bill every year. It is how much taxable income to take now, what is being deferred into future years, and whether the household will retain flexibility as pensions, benefits, and mandatory withdrawals begin.
Test the Survivor Plan
Pension elections and employment-related benefits often have deadlines that make them especially important before the final working year. A higher monthly pension while both spouses are alive can look appealing, but it may not produce the strongest result for the household if the pension stops or falls sharply after the member dies.
In David’s hypothetical pension comparison, a life-only pension produces more income while both spouses are alive. If David dies at 68, however, that pension stops. Using only Sarah’s own CPP and OAS in the illustration, her continuing income is approximately $24,000 per year. With a joint-and-survivor pension option, the couple receives less pension income while both are alive, but Sarah’s continuing income rises to approximately $64,000 if David dies first.
The figures are illustrative and exclude CPP survivor benefits, portfolio withdrawals, insurance, estate taxes, and the actual terms of a pension plan. The point is not that one pension option is universally preferable. A pension election is a household risk decision, not simply an exercise in maximizing income today.
The same review should cover health and dental coverage ending with employment, life insurance conversion deadlines, outstanding bonus or vacation payouts, stock-plan vesting rules, and any compensation that changes if retirement occurs on a particular date. It should also include practical household questions: Are beneficiaries current? Are powers of attorney in place? Does each spouse know where key documents are held and how the income plan works?
A survivor should not have to reconstruct the financial system during an already difficult period. The plan should be understandable and workable for both members of the household.
Move From Decisions to Action
By the final year before retirement, most major choices should be settled and moving toward implementation. A retirement plan is not complete because it appears in a projection. It needs dates, forms, account instructions, and clear responsibility for each action.
A first-year income calendar is often useful. It can show when pension income begins, whether and when CPP and OAS start, which account funds any spending gap, when tax instalments or other payments are due, and when the plan will be reviewed. It does not need to be elaborate. It needs to be clear enough that both spouses can see how the household cash flow will operate.
For David and Sarah, implementation includes confirming the pension election, completing required paperwork, deciding when CPP and OAS will begin, setting an appropriate cash reserve, identifying the account that will fund it, and monitoring tax as several income sources begin arriving. These details reduce the risk that assumptions made in a planning meeting remain unfinished when the final paycheque ends.
The two paths in their example both finish the first five retirement years with portfolios near $2.9 million. The more coordinated path does not depend on a dramatic short-term wealth advantage. Its value is that the couple has deliberately chosen where income will come from, retained more non-registered flexibility, recognized some registered income early, and monitored the OAS threshold along the way.
Use the Planning Window
The five years before retirement are a valuable planning window because many choices are still open. A household does not need every answer at age 58, but it should know which questions have deadlines, which decisions are difficult to reverse, and how one choice affects the rest of the plan.
The practical test is straightforward: can both spouses explain when employment income ends, where the first retirement paycheque comes from, what decisions remain outstanding, and who is responsible for completing them? If not, the retirement plan may still be an accumulation plan with a retirement date attached.
If you are within five years of retirement and recognize unresolved questions around timing, income sequencing, pension elections, tax, or survivor readiness, Ferguson Financial Planning can help model the trade-offs using your household’s actual numbers. An introductory conversation can determine whether the planning relationship is a suitable fit for the decisions in front of you.