For many people, retirement is something they spend decades working toward.

But what often surprises investors is that one of the most important periods financially is not retirement itself. It is the few years immediately before and after it.

This period is often called the “Retirement Red Zone.”

The Retirement Red Zone typically refers to the five years leading up to retirement and the first five years after leaving work.

During this time, financial decisions and market conditions can have an outsized impact on long-term retirement success.

Why This Period Matters So Much

When you are younger and still contributing regularly to investments, market downturns can feel uncomfortable, but you often have time on your side. You are continuing to save, earning income, and allowing investments time to recover.

Retirement changes that dynamic: As retirement approaches, many people stop contributing to their portfolios and begin relying on those investments to generate income.

A significant market decline early in retirement can create added pressure because withdrawals may continue while investments are temporarily down.

This is sometimes referred to as “sequence of returns risk.” Even if long-term market averages are reasonable, poor returns early in retirement can affect how long a portfolio lasts.

Today’s Retirement Environment Feels Different

Retirees today are navigating a very different environment than previous generations.

Markets are reacting quickly to inflation, interest rates, geopolitical tensions, AI disruption, and economic uncertainty.

At the same time, people are living longer, healthcare costs continue to rise, and many families are still helping adult children financially later in life.

Retirement planning today requires flexibility, not just optimism.

Common Mistakes During the Retirement Red Zone

Some of the biggest retirement planning mistakes happen during this period:

• Taking too much investment risk while chasing returns
• Keeping too much in cash out of fear
• Retiring without a clear income strategy
• Starting CPP too early without understanding the long-term impact
• Underestimating taxes in retirement
• Ignoring healthcare and long-term care planning
• Making emotional investment decisions during market volatility

What Can Help?

The good news is that thoughtful planning can make a significant difference.

A strong retirement plan is not just about investment performance. It is about building a strategy that can adapt through changing markets and life events.

That may include:

• Reviewing investment risk as retirement approaches
• Building reliable income sources
• Creating a tax-efficient withdrawal strategy
• Maintaining emergency reserves
• Stress testing retirement plans against different market scenarios
• Having flexibility around spending and retirement timing if needed

Retirement Is About More Than Numbers

The Retirement Red Zone is also emotional.

Many people are transitioning away from careers, routines, and identities they have had for decades. Questions around purpose, lifestyle, family, travel, health, and legacy often become just as important as investment returns.

That is why retirement planning works best when it looks at the whole picture, not just a portfolio balance.

The Bottom Line

Retirement is not won or lost based on one market headline or one year of returns. But the years surrounding retirement are important and deserve careful attention.

Having a thoughtful plan, staying diversified, and making decisions with a long-term perspective can help create more confidence during one of life’s biggest transitions.

Sources: www.canada.ca, FP Canada, and Morningstar Canada retirement planning research.