Investopedia Editor-in-Chief Caleb Silver joins Yahoo Finance Live to discuss what workers should expect if they plan to retire within the next five years, what to consider and plan for, and balancing their personal budges.

Video Transcript

DAVE BRIGGS: Are you retiring soon? If so and you're planning to do so within the next five years, our next guest, Investopedia editor-in-chief Caleb Silver says there are some important things you should look into. He joins us now for this edition of Retirement Ready brought to you by Fidelity Investments. Good to see you, sir. Let's start with just step one. What's the first thing I need to know if five years out, I'm retiring?

CALEB SILVER: You have a big, broad look. You have to be the CEO of your own life, of your own personal finances. So we ask people to make sure they know what their income replacement strategy is going to be. How much do you need? What does it cost to be you now? What's it going to cost be you in five years and beyond? Because we know we're living a little bit longer. Retirement is not just 10, 20 years anymore. It could be 30, 40 years. So what's that replacement cost?

And then how are you going to fund that? Is that from your savings? Is that from your investments? Do you own other properties? What's your income strategy while you're doing this, or are you just drawing down from your retirement funds?

SEANA SMITH: And Caleb, you also make some points here. You need to be tax aware and also properly insured. Walk us through what exactly people need to consider when they're factoring in those two points.

CALEB SILVER: A lot of people have been saving for retirement, they've been investing for retirement, but they don't know if they're in the right tax strategy in terms of long-term capital gains, in terms of what's taxable, what's not. A lot of folks aren't aware of that. So you have to know that, and you have to set aside that money for insurance, especially if you have a family. You want to make sure you're covered. You want to make sure your family is covered. And when you go through that checklist, whether you do it with a financial advisor or you do it online through a digital advisor, you have to check all those boxes to make sure everything is covered because you want to be covered, and you want your loved ones to be covered as well.

DAVE BRIGGS: Should you be rebalancing your portfolio? And if so, how?

CALEB SILVER: Yeah, this is a time to get a little bit more defensive, especially if you have kind of a risk lean into your portfolio. You want to lean back, play some defense here. We're talking about fixed income. We're talking about CDs. There's finally money in the bank, guys, 4% or 5%. So we're talking about that type of thing, money market funds.

We also want you to also be aware of what's taxable and what's not within that strategy because as you start drawing down, whether you're taking down 4% and that 4% rule, make sure you know the tax implications of doing so. And then pad your savings a little bit. These emergencies come up all the time. The last few years have taught us a lot of lessons. You want to have a little bit more savings, especially, as you're going into that five-year stretch.

SEANA SMITH: And we wanna also talk about having enough savings there. A lot of that has to do with rightsizing your balance sheet, really figuring out how exactly you should be budgeting moving forward. What are some of the things that people need to do or consider when they're trying to get the best grasp on that?

CALEB SILVER: Yeah, you think about the percentage of income you're going to need or the percentage of expenses you're going to be able to have to reduce to live the life you want to live. So if you haven't mapped out yet what that retirement plan looks like, where are you going to live? Do you need a big house if you own one? Do you need to have room for other people?

So you have to have that in mind, and you have to have that retirement plan automated. That means paying yourself, as we always say, but also making sure that you can see everything, whether it's on a spreadsheet, whether you're working with a financial advisor. Financial planners and advisors are great at this. Make sure you're aware of that. And then track your goals. Meet quarterly on that with your family, with your partner. Where are we on the path to retirement? Because it gets tricky as you get in there. It's not just you flipping off a switch and not taking income anymore. Paying for that on the way down as you ease into retirement, super important. And then expect the unexpected because we know things happen.

DAVE BRIGGS: What's the most common mistake people are making?

CALEB SILVER: They think that they've had enough saved for retirement, or they haven't really calculated that drawdown. We usually talk about a 4% drawdown to pay yourself, but if you haven't done the math on what it costs to be the you, you want to be once you get into retirement, you could be very sorely mistaken on how much you're going to need. And what you also don't want to do is go in thinking you have enough, but you really haven't done the appropriate planning to know if that's true or not. So it's those expectations that you think it's going to be all right, but really not knowing the numbers.

DAVE BRIGGS: Excellent advice. Caleb Silver, good to see you, sir. Appreciate all that.