Retirement Retirement Planning

The Biggest 401(k) Mistake People Make in the Last 5 Years Before Retirement

Doing this can delay your retirement date.

By Catherine Collins , Edited by Laura Hohenstein

Updated May 21, 2026

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If you are within five years of retirement, your golden years don't seem far off anymore. However, in order to make sure you're fully prepared, it's important to review your retirement plan.

Many workers make the mistake of not shifting their asset allocation before they stop working. Additionally, there are other important steps to take with your 401(k) to ensure you are fully prepared for retirement. Here are some examples.

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The biggest 401(k) mistake

Financial experts recommend that the closer you get to retirement, the more conservative your asset allocation should be. That means moving your 401(k) assets away from riskier classes and more towards assets like bonds and cash.

According to Charles Schwab, an ideal portfolio allocation for people in their 60s is 60% stocks, 35% bonds, and 5% cash.

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What can happen if you invest aggressively for too long

The reason financial experts recommend shifting away from aggressive investments is that they can leave your portfolio exposed to excessive risk. When you're younger and starting your career, it makes sense to have a slightly risky asset allocation because you have a long time horizon before retirement.

However, staying too aggressive, too late, can lead people to make rash decisions like panic selling in a downturn or right when they retire. Instead, work with a financial advisor to gradually de-risk your account, rebalance it annually, and build a liquidity buffer.

Start building an emergency fund and reduce debt

In addition to adjusting your asset allocation, another way to prepare for retirement is to start building an emergency fund and reducing high-interest debt. Moving from a salary paycheck to a fixed income can be stressful for many people. Having a solid emergency fund of one to two years of expenses in cash can prevent people from withdrawing too much, too early from their 401(k)s.

Additionally, when you're five years from retirement, this is a good time to start reducing any high-interest debt you may have. Because many people live on less during retirement, eliminating payments can free up cash flow and make your retirement budget more comfortable.

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Another common 401(k) mistake

In addition to not rebalancing their portfolio, another common 401(k) mistake is not taking advantage of catch-up contributions. The SECURE 2.0 Act raises the amount of catch-up contributions that people can make to their 401(k) accounts. For example, people who are above age 50 can contribute an extra $8,000 on top of their 401(k) maximum contributions.

Workers who are between the ages of 60 and 63 are eligible to make super catch-up contributions. That means they can contribute an extra $11,250 on top of the typical $24,500 based contribution. Taking advantage of these catch-up contribution opportunities can help workers top up their retirement portfolios in the years before they decide to stop working.

New 2026 rules for 401(k) contributions

Other new 401(k) policies workers need to be aware of include rules for high earners. For example, as of 2026, those who earn more than $150,000 a year must make catch-up contributions to Roth accounts.

This might disappoint many workers who rely on catch-up contributions to reduce their taxable income. On the bright side, Roth contributions can be withdrawn tax-free for retirement, so long as you meet certain qualifications.

Other tips for maximizing 401(k) contributions

Here are a few other things to do before you retire. First, confirm your vesting status. Some companies require you to work a certain number of years before you are fully vested in your 401(k) account. If you leave before you are fully vested, you may have to forfeit some of your employer's matched contributions.

Second, look into your 401(k) fees. Some 401(k) fees may be hidden and could be taking away from your overall retirement fund gains. Making sure that you are invested in low-cost funds prior to retirement can help to preserve your portfolio.

Finally, stay up to date with RMD policies. Knowing when you are required to take your first 401(k) distribution can help you with your overall retirement planning.

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When hiring a financial planner can help

If you're not sure whether or not you are on track for retirement, hiring a financial planner can help.

In addition to recommending asset allocations and withdrawal strategies, a financial planner can help you update beneficiaries. They can also help you to prepare for your first year of retirement and optimize your taxes as well.