Retirement Retirement Planning

The 401(k) Rule That Matters Most Once You're Within 4 Years of Retirement

This rule can make or break your retirement.

By Catherine Collins , Edited by Laura Hohenstein

Updated May 27, 2026

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If you are only four years out from retirement, your goals of relaxing days are right within reach. However, this window of time can be perilous for your retirement plan. A bear market right before or during your first years of retirement can negatively impact your portfolio for decades.

So, this is a crucial time when your asset allocation matters more than ever, and experts recommend shifting toward a more conservative portfolio to prepare for your retirement years. Here is more information on why this is important, along with other topics to consider as you near retirement.

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The 401(k) rule that matters most

Financial experts recommend that the closer you get to retirement, the more conservative your asset allocation should be, which 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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Why aggressively investing can be harmful closer to retirement

When you're younger and have a long time horizon before retirement, it's common for your investments to be more aggressive because you have more time to adjust after mistakes.

However, if you are aggressively investing as you near retirement, you could be risking your livelihood and your ability to retire on time. Staying too aggressive too late in your career could lead to panic selling or losing a large portion of your portfolio right when you want to stop working.

Consider implementing the bucket strategy

According to Charles Schwab, workers nearing retirement can consider adopting a strategy called the bucket strategy. The bucket strategy is when you build your savings to cover one to three years of living expenses in cash or a safe, conservative account, like a high-yield savings account. The purpose is to have it on hand to use in case the market takes a downturn during your early retirement years.

Because your first year of retirement is so important in terms of your withdrawal strategy and sets the tone for the rest of your retirement years, it's important to have an emergency fund on hand. The bucket strategy makes cash available for you to live on, so you do not have to sell a large amount of your 401(k) assets during a slow market.

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New catch-up contribution rules that can boost your 401(k) balance

When you have four years left before retirement, consider taking advantage of catch-up contributions. These are contributions you're able to make on top of the typical 401(k) contribution maximum. They are designed to help workers 50 or older pad their retirement funds before leaving the workforce.

If you are age 50 or above, you can contribute an extra $8,000 on top of the 401(k) maximum contributions of $24,500. If you are between the ages of 60 and 63, you can contribute up to $11,250.

Other tips for maximizing 401(k) contributions and transitioning into retirement

In addition to taking advantage of catch-up contributions, here are some other tips for maximizing your 401(k) and transitioning into retirement.

First, the more cash flow you have, the more available money you will be able to invest during your last four years of working. So, if you have high-interest debt, like credit card debt, work to pay down your balances to free up more of your income for retirement.

Next, if you're not sure how to adjust your portfolio on your own, speak with a financial advisor about target date funds, which automatically adjust your risk tolerance over time. This is called a glide path. However, these may not suit every worker's timeline, and there are downsides to consider.

New 401(k) rules that impact high earners

If you are a high earner making above $150,000 a year, there is a new 401(k) rule you need to know about. If you earned that amount and want to make catch-up contributions, you must make them to a Roth account.

That means that many high earners who benefited from lowering their taxable income with catch-up contributions will no longer be able to do so. However, the benefit is that with Roth contributions, you do not have to pay taxes when you withdraw them in retirement, as long as you meet specific qualifications.

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Ask a financial planner for help

If you're within four years of retirement and you're not sure whether or not you can live comfortably on what you have saved so far, make an appointment with a financial planner.

A financial planner can provide guidance on how to make the most of your last four years of working. They can also help you better understand your tax obligations and decide on a withdrawal strategy in retirement.

Bottom line

Being within four years of retirement is an exciting time. You can see that your goal is finally within reach, and you can start making plans for what your life will look like.

However, in order to have a stress-free retirement, it's important to adjust your asset allocation and take advantage of catch-up contributions. This is also a good time to consult a financial advisor if you have questions about transitioning to your retirement years.

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