Retirement Readiness Checklist: Five Years Before Leaving a Defense Contractor Job

In the five years before retiring from a defense contractor career, review more than the balance in your 401(k). Check your employment dates, vesting, pension or deferred compensation benefits, stock awards, healthcare transition, Social Security choices, expected spending, taxes, beneficiaries, and the rules for leaving each account behind or moving it. The goal is to find conflicts while there is still time to change contribution elections, build cash reserves, adjust the retirement date, or coordinate benefits with a spouse.

Five years is a planning window, not a countdown. Each year has a different job.

Five Years Before Retirement: Build the Complete Inventory

Defense contractor careers around Huntsville often involve more than one employer, a company acquisition, a move between contract teams, or earlier military or federal service. Benefits can be scattered across several recordkeepers even when the career itself feels continuous.

Start by collecting the documents that control each benefit. The U.S. Department of Labor explains that participants may request plan information, including the summary plan description, from the plan administrator. Review the Department of Labor plan information guidance.

List every current and former 401(k), 403(b), 457(b), pension, employee stock plan, and deferred compensation account.
Request the current summary plan description for each employer plan.
Confirm the vesting date for employer contributions, stock awards, and any pension benefit.
Record what happens to unvested benefits if employment ends on the proposed retirement date.
Identify any outstanding plan loan and what the plan requires after separation.
Obtain pension estimates for more than one starting date and payment form, if a pension is available.
Review beneficiary forms separately from the will with an estate planning attorney.
Note which benefits depend on being employed on a particular date, such as a match contribution, bonus, or stock vesting event.

The tradeoff is simple. Working a few months longer may secure a benefit or improve a pension calculation. It also means giving up a few months of retirement. Put both sides on paper.

Four Years Before Retirement: Define the Income Gap

Retirement spending and retirement income rarely begin on the same date. A salary may stop before Social Security begins. Employer healthcare may end before Medicare starts. A pension may offer several commencement dates. The portfolio must cover the gaps between those dates.

Estimate essential monthly expenses separately from flexible spending.
Add irregular costs such as home repairs, vehicle replacement, travel, and family support.
Build a year-by-year income map from the proposed retirement date through age 70.
Include a spouse's income, benefits, and retirement date.
Identify which expenses change when work ends, including commuting, payroll deductions, and employer subsidies.
Test at least one retirement date earlier and one date later than the preferred date.
Decide how much readily available cash would be needed for the first one to two years.

Under Social Security rules current in 2026, retirement benefits may begin as early as age 62. Full retirement age is 67 for people born in 1960 or later, and the monthly benefit increases when commencement is delayed from full retirement age up to age 70. Those facts do not determine the claiming date. Health, family longevity, survivor needs, employment income, taxes, and available assets also matter. Review the Social Security retirement age guidance.

Three Years Before Retirement: Use the Remaining Payroll Years Deliberately

The final working years may be the last years with a full salary, employer matching contributions, and regular payroll access to the retirement plan. Review whether those dollars are being directed toward the household's actual gaps.

Confirm the contribution rate needed to receive the full available employer match.
Compare pretax and Roth contribution choices in the context of current and expected retirement tax brackets.
Check whether the plan permits catch-up contributions and how payroll administers them.
Review the asset allocation across all accounts as one household portfolio.
Measure concentration in employer stock, one market sector, or one type of account.
Decide whether high-interest debt or a thin cash reserve competes with additional retirement contributions.
Prepare a multiyear tax projection that includes the final salary years and the first lower-income years after retirement.

For 2026, the IRS employee contribution limit for most 401(k) plans is $24,500. A plan may permit an additional $8,000 catch-up contribution for participants age 50 or older. The higher catch-up limit for participants who turn 60, 61, 62, or 63 during 2026 is $11,250. Participants with more than $150,000 of prior year wages from the plan sponsor may be required to make 2026 catch-up contributions on a Roth basis when the plan offers that feature. These figures change over time, so verify the limit for the year in which the contribution is made. See the IRS 2026 limits and catch-up contribution guidance.

A larger contribution is not automatically the right use of the next dollar. The comparison includes liquidity, debt, taxes, employer matching, and the amount already available for retirement.

Two Years Before Retirement: Design the Healthcare Bridge

Healthcare deserves its own timeline. Do not assume that COBRA, retiree coverage, a spouse's employer plan, Marketplace coverage, and Medicare can be switched on and off without deadlines or tax effects.

Confirm the exact date employer coverage ends after the last day of work.
Ask whether retiree medical coverage exists and whether an election deadline applies.
Price COBRA using the full premium rather than the current payroll deduction.
Compare coverage through a working spouse, COBRA, and Marketplace coverage if retirement occurs before age 65.
Mark Medicare enrollment dates for each spouse separately.
Review prescription coverage and regular providers before selecting a post-employment option.
Coordinate health savings account (HSA) contributions with any Medicare enrollment.

Department of Labor guidance current in 2026 states that COBRA after employment termination generally can last up to 18 months. Medicare uses a separate clock. The Medicare Initial Enrollment Period generally lasts seven months, beginning three months before the month a person turns 65 and ending three months after that month. When employer coverage ends after age 65, the Part B Special Enrollment Period generally ends eight months after employment or group coverage ends, whichever happens first. COBRA does not extend that eight-month period. Review the Department of Labor COBRA guidance and Medicare enrollment timing.

HSA timing also needs attention. If Medicare Part A begins retroactively, it can reach back as far as six months, but not earlier than the month of the 65th birthday. HSA contributions made for months covered by Medicare may become excess contributions. Confirm the stopping date with the employer, HSA administrator, and tax professional before enrolling. Medicare explains the retroactive Part A rule, and IRS Publication 969 explains the HSA contribution rule.

One Year Before Retirement: Convert the Plan into Instructions

By the final year, broad goals should become dates, account instructions, and assigned responsibilities.

Confirm the intended last day of work with human resources and the plan administrator.
Request fresh pension, Social Security, and employer plan estimates.
Document the expected final paycheck, paid time off, bonus, stock vesting, and deferred compensation dates.
Decide which account will fund each expected withdrawal during the first three retirement years.
Compare leaving money in the employer plan, moving part of it, and moving the full eligible balance.
Compare all account, fund, transaction, and advisory fees before any rollover.
Confirm how traditional, Roth, and after-tax balances would be handled.
Review tax withholding for the final wage year and the first retirement year.
Update beneficiary designations, powers of attorney, healthcare directives, and estate documents with the appropriate professionals.
Make sure the spouse or trusted contact knows where the records are kept.

A rollover is not required merely because employment ends. The existing plan may have useful costs, fund choices, or withdrawal rules. An IRA may offer a broader range of holdings and services. A partial rollover may preserve selected plan features while assigning other dollars a different job. The comparison depends on the actual employer plan and the actual IRA, not a general claim that one account type is better.

The Final 90 Days: Protect the Handoff

Small administrative mistakes are easier to prevent before access to the company network ends.

Download personal copies of benefit statements, plan documents, pay records, and human resources contacts outside the employer system.
Replace the work email address and phone number on financial accounts.
Confirm the address and bank information used for final payments.
Check the effective date of every election in writing.
Keep enough cash available so account or rollover paperwork is not being completed under pressure.
Avoid combining a retirement date, Social Security filing, Medicare enrollment, pension election, and full account rollover into one unreviewed transaction.
Schedule a follow-up check 30 to 60 days after separation to confirm that payments, coverage, and account records match the elections.

The Readiness Test

A retirement date is better supported when the household can answer five questions clearly:

What will be received each month, from which source, and when will it begin?

Which account covers the years before Social Security, Medicare, or other benefits begin?

What changes if markets fall, inflation stays elevated, or one spouse lives much longer?

What taxes and healthcare costs could change the expected spending plan?

What benefits are lost, gained, or permanently elected on the last day of employment?

If one answer is still vague, that is the next planning task. The five-year process works best when gaps are handled in sequence rather than through a single retirement product or a last-minute account move.

Sources Reviewed

Ready to Map Out Your Final Five Years?

We work with defense contractor professionals in the Huntsville area to coordinate retirement timing, benefits, and income sequencing into a complete plan. Schedule a free Discovery Session to see where you stand.

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Retirement Readiness Checklist for the Five Years Before Leaving a Defense Contractor Job