The Hidden Cost of “Set-It-and-Forget-It” Investing Near Retirement

For decades, “set it and forget it” has been a good rule of thumb for investors.

Consistently saving. Staying invested. Ignoring short-term market noise.

For many people during their working years, that approach works well.

But the strategy that helps build wealth during your accumulation years can quietly create new risks and tax inefficiencies as retirement approaches.

Around your mid-50s and beyond, the financial landscape starts to change—and your investment strategy often needs to change with it.

Why “Set It and Forget It” Works During the Accumulation Years

When you’re in your 30s and 40s, your primary goal is growth.

You’re earning income, contributing to retirement accounts, and reinvesting dividends. Most investors also have a relatively aggressive portfolio because they have something important on their side: time.

Market downturns during these years are often viewed as opportunities.

If your portfolio drops 20% while you’re still working, you may simply keep investing and buy shares at lower prices. Your paycheck continues, and your investment timeline may still stretch decades into the future.

In this phase, a simple “set it and forget it” strategy can serve many investors well.

But retirement changes the equation.

What Changes as Retirement Gets Closer

As you approach retirement, your portfolio shifts from being a growth engine to becoming a source of income.

And that shift changes how risk feels—and how it impacts your life.

If you experience a major market downturn right before or shortly after retirement, the consequences can be very different than they were earlier in your career.

When you’re no longer earning a paycheck, your portfolio may be responsible for producing the income you live on.

A 25–30% market drop early in retirement can feel very different than it did when you were 35.

That’s why one of the most important steps near retirement is re-evaluating the level of risk in your portfolio.

Many investors built their wealth with aggressive portfolios—which may have been entirely appropriate at the time.

But if those allocations haven’t been revisited in years, they may now carry more risk than intended.

The Quiet Risk of Portfolio Drift

Even if an investor originally chose a balanced allocation, such as a 60/40 mix of stocks and bonds, that allocation doesn’t stay constant on its own.

Over time, market performance can cause the portfolio to drift.

At that point, your portfolio is significantly riskier than the one you originally designed.

If a downturn occurs, the losses could be larger than expected.

Rebalancing—periodically adjusting your holdings to maintain the intended allocation—helps keep your risk profile aligned with your goals.

In practice, that means trimming back investments that have grown significantly and reallocating into other areas of the portfolio.

This process can feel counterintuitive. Many investors naturally want to hold onto their strongest performers.

But disciplined rebalancing helps maintain the risk level you originally intended.

The Tax Problem Many Retirees Don’t See Coming

Investment risk isn’t the only issue with a “set it and forget it” approach near retirement.

Taxes can also become a hidden challenge.

These accounts allow you to defer taxes during your working years. But eventually the IRS requires withdrawals through Required Minimum Distributions (RMDs).

Depending on your birth year, RMDs generally begin at age 73.

At that point, the IRS determines the amount you must withdraw each year—and those withdrawals are treated as taxable income at ordinary tax rates, not long-term capital gains.

Many retirees are surprised by how large these required distributions can be.

In other words, waiting until RMDs begin may lead to paying more taxes over a lifetime than necessary.

The Overlooked Window Between Retirement and RMDs

One of the most overlooked planning opportunities occurs in the years between retirement and the start of required distributions.

During this period, retirees may have relatively low taxable income.

Without wages and before RMDs begin, there can be a window where individuals fall into lower tax brackets.

This creates opportunities to strategically withdraw funds or convert portions of retirement accounts in a way that spreads taxes out over time.

Instead of allowing all the tax liability to build up for later years, investors may be able to smooth out their lifetime tax exposure.

But these opportunities often go unnoticed when retirement planning remains on autopilot.

Another Hidden Issue: Asset Location

There’s another dimension to “set it and forget it” investing that many people overlook: asset location.

Asset allocation focuses on the mix of investments you hold.

During the early years of saving, many investors focus only on their workplace retirement plan. As their income grows, they may begin saving in taxable investment accounts as well.

Over time, people can end up with multiple portfolios that aren’t coordinated.

When viewed separately, each account may look reasonable.

But when viewed together, the overall strategy may not be as tax-efficient as it could be.

Coordinating investments across accounts can help ensure that the overall portfolio—not just each individual account—is working efficiently.

The Bottom Line

“Set it and forget it” can be a powerful strategy during the early stages of wealth building.

But as retirement approaches, the financial decisions become more complex.

Risk levels may need to be revisited. Portfolios may need to be rebalanced. Withdrawal strategies and tax timing begin to matter much more.

Without adjusting for these changes, investors may unknowingly take on more risk—or pay more in taxes—than necessary.

A thoughtful review of your portfolio, tax strategy, and retirement income plan can help ensure your investment approach continues to support the life you want in retirement.

A Next Step

If you’re within 10 years of retirement, it is worth evaluating whether your investment and tax strategy still align with your goals.

At Bland Garvey, we help individuals and families look at their finances through a comprehensive lens—past, present, and future—so they can make informed decisions about what comes next.

From there, you’ll walk away with a clearer understanding of how your current strategy fits into your broader financial picture.

John Garvey, Jr., CPA/PFS

The information provided is educational and general in nature and is not intended to be, nor should it be construed as, specific investment, tax, or legal advice. Individuals should seek advice from their wealth advisor or other advisors before undertaking actions in response to the matters discussed. No client or prospective should assume the above information serves as the receipt of, or substitute for, personalized individual advice.  

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