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

The 12 months before you retire are unlike almost any financial decisions you have made before. In the video above, we walk through the seven we see most often. Here is the written version, with the checks to run before your final paycheck arrives.

For most of your career the goal was simple: earn more, save more, build the portfolio. In your final year that changes. The decisions start affecting each other all at once, and the cost of getting one wrong is highest right at the finish line. Below are the seven mistakes, and what to check before you go.

We worked with an executive we will call Michael, a VP at a software company who set the end of June as his date. He told his family, shifted into retirement mode, and mentally he was done. Three weeks after his last day, a large block of his company stock vested. Because he had already left, he walked away from roughly $180,000 in equity. Not a bad investment. Just the wrong timing.

If you hold RSUs, stock options, a bonus, or deferred comp, your retirement date should not start with your birthday. It should start with your compensation calendar. When does your bonus hit? When do your RSUs vest? Are any options approaching expiration? Is deferred comp scheduled to pay out? We are not saying chase every last dollar, because there is always more to chase. We are saying know exactly what you are walking away from, and when, before you name the day. Sometimes moving a date a few weeks is worth six figures, and once you leave you do not get to change it. This is the same reason we map every executive's compensation calendar well before a target date is set.

Your final working year is your last year of earned income, and earned income unlocks a set of contributions you cannot make once the W-2 stops. That includes your 401(k) and any catch-up you are eligible for, your HSA if you are on a qualifying health plan, and any employer match still available to you.

You spent 30 or 40 years building the portfolio. Do not get 10 months from the finish and leave money behind because you assumed the work was done. Map out exactly what you can still capture before the last paycheck, because after it some of those doors close for good.

Say you retire in June. You might have six months of W-2 income, a bonus that hit earlier in the year, and RSUs that vested before you left. But once the paycheck stops, the back half of the year can look different from any tax year in your career.

That matters, because you may suddenly have room to realize capital gains at a lower rate, or convert money from a traditional IRA to a Roth without landing in the brackets you were stuck in while working. The specific opportunity depends on when you retire and what you have already earned that year, which is why you map the whole year before you make a single move. For a lot of executives that partial year is one of the best tax-planning windows they get in all of retirement. We break down how the retirement age you choose changes the tax math in this walkthrough of retiring at 48 vs 56 vs 60.

If you are retiring before 65, healthcare and taxes have to be one conversation. We worked with someone we will call Susan, who retired at 58. Her income dropped, so she bought coverage through the ACA marketplace and, based on that lower income, qualified for premium tax credits that cut her healthcare cost significantly. Then December came and her accountant flagged room for a Roth conversion, so she converted $200,000 from a traditional IRA. On the tax side it made sense. But that $200,000 also counted as income for the year and wiped out most of the health subsidy she had been receiving. She saved on taxes for the next 20 years and paid thousands more for healthcare that year, simply 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. Few ask what else the extra income touches. Before you convert a dollar, run both numbers and see if the trade-off still holds.

Medicare generally uses your tax return from two years earlier to set your premiums. The surcharge higher-income retirees pay on Part B and Part D is called IRMAA (the Income-Related Monthly Adjustment Amount). A large Roth conversion, a big stock sale, or a deferred comp payout in the years before you enroll can quietly raise your premiums two years down the road.

That does not mean you avoid those moves. Sometimes a higher premium is well worth it when the tax benefit is far greater. But you want to know going in. We have seen people skip a smart tax decision because they feared 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. The Social Security Administration explains how IRMAA is calculated here.

We worked with someone we will call David, who 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 had better investment options. A few months later he needed to pull money to cover expenses before his other income sources kicked in. Because of the rule of 55, if he had left that money in his employer's 401(k) he could have taken withdrawals penalty-free, since he separated from service in the year he turned 55 or later. By rolling to an IRA first, he lost that option until 59 and a half, or risked a 10% early-withdrawal penalty.

If you are retiring between 55 and 59, understand how you are funding those first few years before you automatically roll your 401(k). We are not saying never roll it over, because in most situations you likely should. We are saying understand the options you are giving up before you do. Here is how the choice compares:

For a fuller menu of ways to reach your money early, see our guide to 3 ways to access retirement funds early.

We started with a couple about a year ago who looked completely ready on paper: more than enough saved, a paid-off house, kids through college. Every time they set a date, they froze. Not because they lacked the money, but because no one had ever shown them where the money would come from once the paycheck stopped.

For your whole career, income just showed up. When you retire, 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, how much from your brokerage account, are you touching pre-tax accounts, is there deferred comp or consulting income? And what happens if the market drops 25% right after you retire?

This is where our Four Liquidity Bands come in, the way we structure money by when you will actually need it: 0 to 2 years for current needs, 3 to 5 for the short term, 6 to 10 for the mid term, and 10-plus for the long term. Any guaranteed income sits at the base, flexible portfolio withdrawals sit on top, and a cash cushion sits underneath, so a bad market does not force you to sell long-term investments at the worst possible time. Once the couple saw that plan, they set a date within a month.

Most people optimize each of these decisions in isolation, and each one looks smart on its own. The Roth conversion looks great when you only ask about long-term taxes. The 401(k) rollover looks cleaner when you only think about tidy paperwork.

Here is the edge: in your final year, the same dollar of income shows up in three different places. It sets this year's tax bracket, it decides whether you keep this year's ACA subsidy, and it drives your Medicare premium two years from now. The mistake is not the conversion or the rollover. The mistake is sequencing them one at a time instead of mapping the whole year at once. Retirement stops feeling uncertain when you can see where every dollar comes from before your employer sends that final check.

Take an executive earning around $450,000 who plans to retire at 57. [VERIFY: figures illustrative, not a real client] Anchored to the compensation calendar, they push their last day from June to early October so a September RSU block vests and the annual bonus lands first. Those extra months also let them max the 401(k), catch-up, and HSA for the year. Because the back half of the year is low-income, they realize some gains and pencil in a modest Roth conversion, but they size it against the ACA subsidy they would lose and the IRMAA surcharge it would trigger at 65, then keep it small enough that all three numbers still work. They leave the 401(k) in place, not rolled, so the rule of 55 funds the gap years. And they build the first two years of spending in cash so a market drop right after they leave never forces a sale. Same person, same assets. The difference is sequencing.

This is written for corporate executives in their 40s and 50s with a household income of $500,000 or more, complex equity compensation (RSUs, options, deferred comp), and a target retirement date within roughly the next 12 months. If that is you, the seven checks above are worth running before your final paycheck, because in the last year the decisions stop being independent and start affecting each other all at once.

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If you are working toward an early retirement date and want these decisions mapped for your situation, from your equity and taxes to your healthcare and where your income will come from, this is exactly the work we do. It is a low-friction conversation about your plan, not a sales pitch.