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 Oct. 7, 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 gives you plenty of time to make mistakes and recover.

However, if you're three years from retirement, you don't have that luxury. The decisions you make right before you retire can shape the 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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Many successful investors eventually reach the same moment. The saving is done, the portfolio is built, and the question quietly changes from how much can I grow this to how much can I take out? Get that second question wrong and decades of good investing can come apart in a handful of years.

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The significance of your last three working years

The closer you get to retirement, the less time you have to recover from 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 offer an opportunity to grow your 401(k) balance further. In 2026, workers aged 60 to 63 can contribute an extra $11,250 in catch-up contributions (instead of the standard $8,000). 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 retirement, what matters most is preserving your hard-earned investment balances, not chasing big returns. At this stage, make sure your 401(k) balance can support you long term, especially since 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 affect 401(k) balances, which can be stressful for those close to retirement.

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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Most people spend their entire working lives focusing on one thing: growing a pile of money. Then they retire and discover the skill they actually need is close to the opposite. Turning that pile into steady income, year after year, through good markets and bad, without ever running out. It may be the least discussed and most consequential transition in personal finance, and plenty of otherwise careful investors walk into it with no real plan.

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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

To take the first step in reviewing your 401(k) plan, 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 retirement to think about 401(k) withdrawals. However, planning ahead during your last three years of work can help you 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 determine your safe withdrawal rate 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 reassure you that you're ready to confidently enter retirement. 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, focus on maintaining your investments and preserving your wealth as you 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 staying compliant with 401(k) rules.

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