Retirement Retirement Planning

The 401(k) Rule That Matters Most Once You’re Within 3 Years of Retirement

Don't forget about this if you're retiring soon.

By Catherine Collins

Edited by Laura Hohenstein

Updated Feb. 17, 2026

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If you plan to retire within three years, it's more important than ever that you make the right money moves. After all, when you begin your career, the long time horizon to retirement means you have plenty of time to make mistakes and recover from them.

However, if you're three years from retirement, you don't have that luxury. The decisions you make right before you retire can impact the type of lifestyle you have in the decades ahead. That's why the 401(k) rule that matters the most right before retirement is to focus on preserving your savings rather than chasing returns.

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The significance of your last three working years

The closer you get to retirement, the less time you have to make up for investment mistakes. That's why it's important to take advantage of every opportunity to top up your retirement account before you stop working, while also protecting what you've built thus far.

These last few years before you retire, depending on how old you are, can also provide the opportunity to grow your 401(k) balance more. Starting in 2026, workers who are aged 60 to 63 can now contribute an extra $11,250 in catch-up contributions. That, plus employer matches, can help future retirees finish their working years on a high note.

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The 401(k) rule that matters most

As mentioned, when you're three years from your retirement date, what matters most is preserving your hard-earned investing balances, not chasing big returns. What's important at this stage in your life is to make sure your 401(k) balance can support you long-term, especially because people are living longer than ever.

Charles Schwab recommends that when you're between the ages of 60 and 69, consider having 60% stock, 35% bonds, and 5% cash, which is what's considered a moderate risk portfolio.

Why market swings matter

Market fluctuations happen, and they are a normal part of investing long-term in a 401(k). However, economic uncertainty can also negatively impact 401(k) balances, which can be stressful for those close to retirement to see.

However, shifting to more conservative investments as you near retirement can help to insulate you from market volatility, though you should always check with a financial planner before changing your retirement investing strategy.

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The hidden fees eroding 401(k) balances

According to the U.S. Government Accountability Office survey, 41% of workers don't realize they are paying fees at all. If you're within three years of retirement, it's important to understand all fees associated with your 401(k) account. This includes administration fees, management fees, and expense ratios on specific funds you purchased.

Understanding how much you pay in fees and the impact it will have on your retirement balance moving forward can help you reevaluate your portfolio before you retire.

How to review your 401(k) plan

If you want to take the first step to review your 401(k) plan, first check your most recent balance statement. Review the funds you've chosen to invest in. See what type of returns they've had and check how much you're paying in fees.

If you have any questions or don't understand something about your 401(k), speak to your Human Resources department or your 401(k) plan provider. Many people have trouble deciphering 401(k) plan lingo, and there's no shame in asking questions about something as important as your retirement funds.

How to plan for retirement withdrawals

Many people wait until they are in retirement to think about their 401(k) account withdrawals. However, making a plan ahead of time during your last three years of working can help you to be prepared.

You'll need to coordinate your 401(k) withdrawals with Social Security benefits and any other retirement accounts you may have. Working with an accountant and a financial planner can help you understand what your safe withdrawal rate should be based on your 401(k) balance, while also helping you avoid tax bill surprises.

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When to consider professional help

If you're still unsure whether or not you're on the right track to retire successfully after reviewing your 401(k) plan, work with a financial planner. A financial planner can help you understand the best steps to take in your last three years of working and provide some reassurance that you're ready to confidently enter your retirement years. They can also provide projections based on your risk tolerance to show you how long your 401(k) will last based on different withdrawal scenarios.

Bottom line

When you're within three years of retirement, it's more important than ever to review your 401(k) plan details and create a strategy for retirement. To retire comfortably, it's best to focus on maintaining your investments and preserving your wealth when you're near retirement, rather than chasing big returns. Staying up-to-date on rules, including contribution rates, catch-up contributions, and RMDs, can also help ensure you're maximizing your investments while also staying compliant with 401(k) rules.

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