Hybrid Retirement

The Final Year Before Early Retirement: 7 Mistakes High Earners Make

Written By: Dan Pascone
Desktop workspace with retirement planning notes, checklist, and calendar
TL;DR: The final year before early retirement is different because equity, taxes, healthcare, and income stop acting independently and start moving together. Optimize one in isolation and you can quietly damage another.
- Anchor your date to your compensation calendar, not your birthday. - Map your final tax year, and connect any Roth conversion to your ACA subsidy and future IRMAA. - Do not roll your 401(k) out too fast if you are 55 to 59 and need the rule of 55. - Build your first retirement paycheck before you leave.
For most of your career, the money game was simple. Earn more, save more, build the portfolio, repeat. Your final 12 months before retirement do not work that way.
In that last year, your equity, your retirement accounts, your taxes, and your healthcare all start colliding at the same time. Decisions that used to be independent suddenly move together. Get one wrong and it can cost you a lot of money, or close a door you do not get to reopen once you have left. We see the same avoidable mistakes from smart, high-earning executives who did almost everything right for 30 years, then stumbled in the final stretch.
We walked through all seven on video this week. It is worth the watch before you set a date.

Mistake 1: Picking Your Date Without Checking Your Equity

Here is a scenario we see all the time. An executive picks the end of June to retire, tells the family, and mentally checks out. Then a large block of company stock vests three weeks after the last day. Because they have already left, that equity walks out the door with them. Not a bad investment, just bad timing. One software VP we will call Michael did exactly this and walked away from roughly $180,000 in vesting equity.
If you hold RSUs, stock options, a bonus, or deferred comp, your retirement date should not start with your birthday or a round number. It should start with your compensation calendar. When does your bonus hit? When do your RSUs vest? Are options approaching expiration? Is deferred comp scheduled to pay out?
You do not need to chase every last dollar. But before you pick your final day, know exactly what you are walking away from and when, because moving the date a few weeks is sometimes worth six figures. This is the discipline behind the executive income and equity calendar we build so timing never becomes an expensive accident.

Mistake 2: Leaving Your Last Year of Contributions on the Table

Your final working year is your last year of earned income, and earned income is what unlocks contributions you cannot make once the W-2 stops. That includes your 401(k) and any catch-up contributions, your HSA if you are on a qualifying health plan, and any employer match still on the table.
You spent 30 or 40 years building this portfolio. Do not get 10 months from the finish line and leave money behind because you assumed the work was done. Map out what you can still capture before that last paycheck, because after it, some of those doors close for good.

Mistake 3: Ignoring Your Final Tax Year

Say you retire in June. You might have six months of W-2 income, a bonus that hit earlier, and RSUs that vested before you left. But once the paycheck stops, the back half of that year can look unlike any tax year of your career. You may suddenly have room to realize capital gains at a lower rate, or convert a traditional IRA to a Roth without landing in the brackets you were stuck in while working.
The opportunity depends on when you retire and what you have already earned, which is exactly why you map the whole year before making a single move. For many executives, that partial year is one of the best tax-planning windows they will ever get, an idea we cover in depth in Why Retiring Earlier Might Actually Leave You Richer. If deferred comp is part of your exit, the exit-year decision on how it is taxed deserves attention long before you resign.

Mistake 4: Planning Your Roth Conversion and Healthcare Separately

If you are retiring before 65, healthcare and taxes have to be part of the same conversation.
A client we will call Susan retired at 58. Her income dropped, so she bought coverage through the ACA marketplace and qualified for premium tax credits that cut her healthcare costs significantly. Then December arrived, her accountant flagged room for a Roth conversion, and she converted $200,000 from a traditional IRA.
On the tax side, it made complete sense. But that $200,000 also counted as income for the year, and it wiped out most of the healthcare subsidy she had been receiving. She saved on taxes for the next 20 years and paid thousands more for healthcare that year, because nobody connected the two decisions in advance.
Was the conversion a mistake? Not necessarily. The long-term tax savings may have far outweighed the healthcare cost. That is the point. Most people ask what a Roth conversion saves them long term, but rarely ask what else that extra income affects. Before you convert a dollar, run both numbers.

Mistake 5: Forgetting That Medicare Looks Back Two Years

Medicare generally uses your tax return from two years earlier to set your premiums. It is called IRMAA, the income-related monthly adjustment amount that higher-income retirees pay on top of Part B and Part D.
So a big Roth conversion, a large stock sale, or a deferred comp payout in the years leading up to Medicare can quietly raise your premiums two years down the road. That does not mean you avoid those moves. Sometimes a higher Medicare premium is well worth it when the tax benefit is far greater. But you want to know going in. We have watched people skip a smart tax decision out of fear of IRMAA, and others trigger a higher premium without realizing it until the bill showed up two years later. Understand the trade-off before the income ever hits your return.

Mistake 6: Rolling Over Your 401(k) Too Quickly

A client we will call David retired at 56. Like a lot of people, the week after he left he rolled his 401(k) into an IRA. It felt cleaner, and the IRA offered better investment options.
A few months later, he needed to pull money to cover expenses before his other income kicked in. Because of the rule of 55, if he had left that money in his employer's 401(k) he could have taken penalty-free withdrawals, since he separated from service in the year he turned 55 or later. By rolling to an IRA first, he lost that option until age 59 and a half, or risked a 10% early withdrawal penalty.
In most cases you likely should roll your 401(k) over eventually. Just understand what you are giving up before you do, especially if you are retiring between 55 and 59 and need those first few years of income.

Mistake 7: Retiring Without Building Your First Paycheck

We started working with a couple about a year ago. On paper they were completely ready: more than enough saved, a paid-off house, kids through college. But every time they set a date, they froze. Not because they lacked money, but because no one had shown them where the money would come from once the paycheck stopped.
For your entire career, income just showed up. In retirement that certainty disappears overnight unless you rebuild it on purpose. So before you leave, answer one question: where is every dollar you spend in year one going to come from? If your lifestyle costs $200,000 a year, how much comes from cash, from your brokerage account, from pre-tax accounts, from deferred comp or consulting income? And what happens if the market drops 25% right after you retire?
That is why we build an income plan with guaranteed income at the base, flexible portfolio withdrawals on top, and a cash cushion underneath, so a bad market never forces you to sell long-term investments at the worst possible time. It is the same idea behind the headline-resistant portfolio, and once these clients saw their plan, they set a retirement date within a month.

What Most People Miss

None of these seven mistakes is individually complex. The failure is treating equity, taxes, healthcare, and income as separate decisions when, in the final year, they move as one system. Optimize a single lever in isolation and you can silently pull another the wrong way.
The decision
What else it quietly moves
Setting the retirement date
Whether your next equity block vests before or after you leave
A Roth conversion
Your ACA premium subsidy this year, and IRMAA two years later
A large stock sale or deferred comp payout
IRMAA on Medicare Part B and Part D two years out
Rolling the 401(k) to an IRA
Penalty-free access under the rule of 55 (lost until 59 1/2)
The executives who get this right are not smarter. They just stopped making these calls one at a time and started mapping the whole final year as a single connected plan.

A Concrete Example: Moving the Date to Catch the Vest

Take an executive earning about $450,000 who plans to retire at 57 with a last day at the end of June. On the compensation calendar, an RSU block vests in September and the annual bonus pays out in the fall. By moving the final day from June to October, the same person captures that September vest and the bonus instead of forfeiting them, potentially six figures, while also shaping the income that lands in the crucial final tax year. Same decision to retire, a few months of difference, a very different result.

Frequently asked questions

What is the biggest financial mistake to avoid before retiring early?

Anchoring your retirement date to a birthday or round number instead of your compensation calendar. Unvested RSUs, a pending bonus, or a deferred comp election can be worth six figures, and leaving weeks early can forfeit them. At Tailored Wealth we map the compensation calendar first, then set the date around it.

Does a Roth conversion affect my ACA health insurance subsidy?

Yes. A Roth conversion adds to your income for the year, and ACA premium tax credits phase out as income rises, so a large conversion can erase most of a subsidy you were receiving. The conversion can still be worth it over 20 years, but you should run the healthcare cost and the tax savings together before you convert, not after.

What is IRMAA, and how far back does Medicare look?

IRMAA is the income-related surcharge higher-income retirees pay on Medicare Part B and Part D. Medicare generally sets it using your tax return from two years earlier, so a big conversion, stock sale, or deferred comp payout can raise your premiums two years later. Knowing the two-year lookback lets you time income deliberately rather than get surprised by the bill.

Should I roll my 401(k) into an IRA right after I retire?

Often eventually, but rarely immediately if you are retiring between 55 and 59. Under the rule of 55, money left in your employer's 401(k) can be withdrawn penalty-free if you separated in the year you turned 55 or later. Roll to an IRA too soon and you lose that access until 59 and a half. Decide how you will fund your first few years before you move the account.

How do I create income in retirement once the paycheck stops?

You build it on purpose. A durable plan layers guaranteed income at the base, flexible portfolio withdrawals on top, and a cash cushion underneath, so a downturn never forces a sale of long-term investments. This is where the Four Liquidity Bands come in: money is matched to when you need it (0-2 years for current needs, 3-5 for short-term, 6-10 for mid-term, 10-plus for the long term).

Who This Is For

This is written for corporate executives and senior leaders in their 50s who are within about 12 months of an early-retirement date, typically with $500,000-plus in household income and complex compensation: RSUs, stock options, deferred comp, and meaningful pre-tax and taxable balances. If you are eyeing a date and have equity vesting, a pre-65 healthcare gap, and a first year of income to fund, this checklist is for you. If you are early-career and decades from retiring, this is not yet your chapter.

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