It’s the last lap. You’re finally within striking distance of retirement, and the temptation is to coast.
You’ve been contributing to your 401(k) for decades, maybe you’ve done everything “right,” and now it just feels like a waiting game. Except it’s not.
The final year before retirement is arguably the most financially consequential twelve months of your entire career. Decisions made during this window, whether around contributions, asset allocation, rollovers, or tax planning, can either solidify your nest egg or quietly chip away at years of work.
The stakes couldn’t be higher, and unfortunately, the mistakes couldn’t be more common. From under-contributing to ignoring RMD rules, most pre-retirees sleepwalk right into financial pitfalls that are completely avoidable.
Let’s dive in.
Failing to Max Out Contributions in the Final Stretch
Failing to Max Out Contributions in the Final Stretch (Image Credits: Pixabay)
Here’s the thing most people don’t fully appreciate: the final year of work is your last real chance to pump money into a tax-advantaged account while earning a salary. The IRS has set the 401(k) contribution limit for employees at $24,500 in 2026, with people aged 50 and older able to contribute an extra $8,000 as a catch-up contribution.
7% of income in 2024, according to Vanguard. For someone earning $80,000 a year, that’s roughly $6,160, a fraction of what’s actually allowed.
While maximizing employer matching contributions is beneficial, limiting contributions to just the match may not suffice for a comfortable retirement, and financial advisors often recommend aiming to save around 15% of annual income.
Skipping the Enhanced “Super Catch-Up” Opportunity
Skipping the Enhanced
Most people over 50 know about catch-up contributions.
Individuals aged 60 to 63 can make catch-up contributions of $11,250, bringing their total potential contribution to $34,750.
That is a substantial upgrade over the standard catch-up limit, and it applies right in the window where most pre-retirees are finishing out their careers.
Yet only about 14% of US plan participants contribute the maximum amount to their 401(k) plans, according to Vanguard data.
The overwhelming majority of savers, including those on the verge of retirement, never take full advantage of the contribution ceiling.
Getting the Asset Allocation Dangerously Wrong
Getting the Asset Allocation Dangerously Wrong (Image Credits: Pixabay)
The year before retirement is where asset allocation decisions can either protect your wealth or expose you to catastrophic losses. It’s a genuine tightrope.
Let’s be real: many pre-retirees make the mistake of going way too conservative too early, essentially parking their money in low-yield bonds or stable value funds while still needing decades of growth to sustain a 20 or 30-year retirement.
According to actuarial data used in the Social Security Administration’s 2024 Trustees Report, the average 65-year-old American man can expect to live to around age 82, while the average woman can expect to live until approximately age 85.
Ignoring High Fund Fees That Silently Drain Returns
Ignoring High Fund Fees That Silently Drain Returns (Image Credits: Unsplash)
Many pre-retirees spend considerable energy watching their balance grow and essentially zero time checking what it costs them to hold their current investments. It’s like obsessing over your gas tank while ignoring a slow leak in the tire.
One drawback of saving for retirement in a 401(k) is that you’re generally not able to hold stocks individually, and a number of the funds you’re offered might come with hefty fees that eat away at your returns.
Target date funds are based on the expected date of retirement and are designed as a “one size fits all” plan, but the problem is investors are not the same size.
Overlooking the Beneficiary Designation on Your Account
Overlooking the Beneficiary Designation on Your Account (Image Credits: Unsplash)
Here is something that surprises almost everyone: updating your will or trust does not automatically update the beneficiary on your 401(k). These are separate legal documents governed by completely different rules.
Not updating your estate plan can create unnecessary complexities for your heirs, and experts recommend reviewing key estate details every three to five years, including rereading your trust to ensure the distributions outlined fit your desired goals and making sure your power of attorneys, wills and healthcare documents still carry out your wishes.
Retirees commonly think that updating their trust automatically updates their IRA or 401(k) beneficiary designations, which is not true.
In your final working year, take one hour and verify every beneficiary designation on every retirement account you hold. One hour.
Missing the Employer Match in the Home Stretch
Missing the Employer Match in the Home Stretch (Image Credits: Unsplash)
It sounds almost too basic to mention, but it happens more than you’d think. Some workers, in their final year, adjust their contribution timing or reduce their deferral percentages without realizing they’ve accidentally fallen below the threshold needed to capture the full employer match.
That is free money being refused. Politely handed back.
According to Vanguard’s 2025 How America Saves report, the most common employer match formula is 50% of every dollar an employee contributes, up to 6% of their salary.
According to Empower’s research, engaged participant savings rates are 56% higher than rates for unengaged participants, and engaged participants are also more likely to take full advantage of their plan’s employer match.
Staying actively aware of your plan in the final year is not optional.
Staying on Autopilot With a Stale Investment Mix
Staying on Autopilot With a Stale Investment Mix (Image Credits: Unsplash)
One of the most insidious financial mistakes is one that requires no action at all. It happens simply by doing nothing.
Engaging with your savings is critical if you want to retire comfortably, and this means educating yourself, reading your 401(k) statements, and making changes as needed.
Asset allocation is not static and should be revisited regularly throughout retirement, and factors like age, health status, life expectancy and changes in financial goals necessitate periodic reassessment.
Fumbling the 401(k) Rollover to an IRA
Fumbling the 401(k) Rollover to an IRA (Image Credits: Unsplash)
When the retirement date arrives, millions of workers roll their 401(k) balances into traditional IRAs. It sounds simple, and done correctly it is.
According to a 2024 research report, $595 billion was rolled over from employer plans to traditional IRAs in 2020, and 62% of US households with IRAs rolled over amounts from employer plans to traditional IRAs.
One specific trap involves RMD timing.
When an RMD is due, it must be distributed before any rollover, because the first distribution made in a year for which an RMD is due includes the RMD until it is satisfied.
Missing or Mishandling Required Minimum Distributions
Missing or Mishandling Required Minimum Distributions (Image Credits: Unsplash)
Speaking of RMDs, they deserve their own chapter entirely. For anyone approaching retirement age while managing traditional retirement accounts, the RMD rules are not something you can afford to be fuzzy on.
7 billion per year due to major mistakes with required minimum distributions, and if you don’t take them when you’re supposed to, you could face very expensive penalties.
If you don’t take any distributions, or if the distributions are not large enough, you may have to pay a 25% excise tax on the amount not distributed as required, reduced to 10% if withdrawn within two years.
RMDs are minimum amounts that IRA and retirement plan account owners generally must withdraw annually starting with the year they reach age 73, and retirement plan account owners can delay taking their RMDs until the year in which they retire, unless they’re a 5% owner of the business sponsoring the plan. Know your rules.
Not Having a Written Retirement Income Plan Before Day One
Not Having a Written Retirement Income Plan Before Day One (Image Credits: Unsplash)
Honestly, this is the biggest mistake of all, and it’s the one that ties everything else together. Most workers spend more time planning a two-week vacation than they do planning a 20 to 30-year retirement income strategy.
62% of Americans say they are not on track to have enough saved for retirement, including nearly two in three Baby Boomers. Nearly half of retirees believe they’ll outlive their retirement savings.
These numbers are not abstract.
64% worry more about running out of savings than death, and 73% worry that the increasing cost of living could affect their retirement plans.
The antidote to financial anxiety in retirement is not a bigger balance. It is a well-structured plan.
Blending retirement withdrawals between pre-tax, Roth and non-retirement accounts to minimize taxes, and engaging in detailed tax planning for not only the current year but the next 15 to 20 years in mind, can often save significantly in taxes.
Conclusion
Conclusion (Image Credits: Unsplash)© Unsplash
The year before retirement is not a time to relax financially. It is, in many ways, the most important financial year of your working life.
The good news is that every single one of them is also avoidable. A few deliberate decisions in that final twelve months can protect decades of savings, reduce your tax burden significantly, and give you the retirement you actually worked toward.
So here’s a simple question worth sitting with: if you’re in your final working year right now, do you actually know what your 401(k) is doing for you, or are you just hoping for the best?
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