Within 5 Years of Retirement? Warren Buffett Has 5 Money Rules Everyone Should Hear

The five years before retirement are unlike any other window in a financial life. You are no longer just accumulating. You are preparing to live off what you have built, which means the stakes on the decisions you make right now are unusually high.

If you want to make the right moves in this window, Buffett's documented principles offer a useful starting framework, with one significant limitation worth knowing upfront.

Cash is optionality, not dead weight

Buffett has spent years explaining why Berkshire Hathaway holds enormous amounts of cash even when it earns relatively little. His position peaked at $397 billion in cash and Treasury bills as of mid-2026. Critics have called it excessive. His answer has been consistent.

Cash is not dead weight. Cash is the ability to act when others cannot.

In a 2026 CNBC interview, Buffett said plainly: "If there is a big decline, we will deploy capital." The operative principle is that holding cash means you are never a forced seller. You are never the person who has to liquidate at the worst possible moment because you have no alternative.

For a near-retiree, that principle translates directly into what financial planners call a cash buffer. Entering retirement with one to two years of living expenses in cash or near-cash means that if the market drops 30% in year one of retirement, you are drawing from your buffer rather than selling equities at the bottom. The buffer buys time for the portfolio to recover before you have to touch it.

Keep investment costs as low as possible

Buffett has been consistent on this point since at least 1993. His preference for low-cost index funds over high-fee managers is the most democratically applicable thing he has ever said publicly about investing.

In his 2013 shareholder letter, he disclosed the instructions he left for his wife's inheritance trust: "Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund." He added: "I believe the trust's long-term results from this policy will be superior to those attained by most investors, whether pension funds, institutions, or individuals, who employ high-fee managers."

The math on costs is simple. A 1% annual fee on a $500,000 portfolio costs $5,000 per year before a single dollar is earned. Compounded over 20 years, the drag is substantial. A broad-market index fund charging 0.03% to 0.05% eliminates most of that cost immediately.

The five-year pre-retirement window is a good time to audit what every account you hold is actually charging and whether the cost buys anything that a low-cost index fund does not provide.

Never borrow to invest

Buffett has long warned investors about using borrowed money to buy stocks. His reasoning is simple: Stocks can fall sharply without warning, and debt can make those losses much harder to handle. In Berkshire Hathaway's 2017 shareholder letter, Buffett wrote that there is no way to know how far stocks might fall in a short period and argued strongly against borrowing to invest.

For someone nearing retirement, the takeaway is to be especially careful with leverage. Avoiding margin debt and other forms of borrowing to invest can reduce the risk of being forced to sell investments during a market downturn.

Ignore market noise

Buffett's annual meetings have included some version of the same observation for decades: no one consistently predicts short-term market movements, and acting on short-term headlines is a reliable way to destroy long-term results.

He has described the stock market as "a device for transferring money from the impatient to the patient." His own behavior during volatile periods demonstrates the principle: Berkshire did not change course during the 2026 market pullback because Buffett said the current dip did not meet his threshold for action, adding that "three times since I've taken over Berkshire, it's gone down more than 50%."

For a near-retiree, ignoring noise is hardest precisely when it matters most. The five years before retirement are when people are most anxious and most likely to make reactive changes that lock in losses. The practical version of Buffett's advice here is to build a written plan before volatility arrives and commit to it so that market headlines do not become portfolio decisions.

The 90/10 rule, understood correctly

The 2013 trust instruction for his wife is cited constantly, often incorrectly. The 90% equity, 10% short-term bond allocation was designed for a long-horizon trust with no fixed withdrawal schedule.

As SmartAsset has noted, the allocation works best for investors who can ignore short-term volatility and who are not drawing down the portfolio on a fixed monthly schedule. For someone 30 years into a trust, a 30% equity decline is a paper loss. For someone in year one of retirement drawing 4% annually, a 30% decline combined with withdrawals is a permanent reduction in the capital base.

The long-horizon portion of a retirement portfolio, the money that will not be touched for 10 or 15 or 20 years, is well served by something close to his 90/10 framework. The near-term portion, the years of spending you will need in the next three to five years, should not be structured as if you have a 20-year horizon, because you do not.

Where Buffett's framework stops short

Buffett is investing permanent capital. He has no withdrawal schedule. He is not selling equities to pay monthly expenses. His portfolio does not face sequence-of-returns risk.

A 62-year-old planning to retire in two or three years faces exactly that risk: if markets drop sharply in the first years of retirement and they are drawing down simultaneously, the losses become permanent in a way they would not for someone with no need to sell.

His cash-as-optionality principle addresses part of this, but he does not discuss Social Security claiming age, glide paths, or withdrawal sequencing because those are not decisions he faces. For a near-retiree they are the most consequential decisions of the window.

What Buffett's current posture suggests, carefully stated

Berkshire held more than $370 billion in cash at the end of 2025 after selling a net $172 billion in equities over three years. Buffett has said the current market dip does not meet his threshold for deploying that capital. He has not predicted a crash. He has simply said that a mild decline from an expensive market does not produce the valuations he requires.

That posture is worth noting as context. It is not a market call to act on.

Bottom line

Buffett's core rules, including keeping cash on hand, avoiding unnecessary costs and debt, ignoring short-term noise, and investing for the long term, can also guide the years leading up to retirement.

To stay on track for retirement, focus on the decisions you can control: how much cash to keep, when to make your portfolio more conservative, and when to claim Social Security. These choices can have a major impact on your long-term retirement security.

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