When you are in your early 60s with a net worth between $2 million and $5 million, your financial focus undergoes a massive, psychological shift. You are transitioning from decades of trying to grow your wealth to figuring out how to preserve it and turn it into a sustainable lifelong paycheck.

Yet, as an hourly financial planner, I see a massive blind spot crop up over and over again with this demographic: how they manage their bond portfolios.

Many of my clients—especially engineers, tech workers, and high-income professionals—are brilliant at accumulation, but they have never had to think deeply about fixed income. If you are 1 to 5 years away from hanging it up, here are the three biggest bond mistakes that could be putting your retirement at risk.

Mistake #1: Holding No Bonds (The "Tech-Sector" Legacy)

This is incredibly common for folks who have spent their careers in engineering, tech, or corporate management.

Typically, they have between $100,000 and $250,000 in cash sitting in a bank savings account, and then they have $2 million to $3 million in their 401(k)—held almost entirely in aggressive equity index funds. Because they have held these funds for decades, and because the stock market has been on an incredible run, any small bond allocation they once had has been completely "crowded out" by stock gains.

When you have a super-aggressive, 100% stock portfolio, it works beautifully while you are working. But as retirement gets closer—say, 1 to 5 years away—an all-stock portfolio will start to make you incredibly on edge.

During the Traditional Working Phase, you held your assets entirely in stocks as a growth engine. Over decades, this approach was highly effective. However, as you move into the Vulnerable Pre-Retirement Phase, relying entirely on a volatile 100% stock portfolio can become extremely stressful when you have no defensive buffer.

Why do people avoid bonds? They are historically viewed as "boring." On top of that, while the math of bonds is actually simpler than stocks, they are full of inverse relationships (like when interest rates go up, bond prices go down) that can feel counterintuitive.

If you are close to retirement, you need ballast. Stocks are your growth engine; bonds are your shock absorber. It’s time to get familiar with fixed income so you can actually enjoy the transition without staring at market tickers in a panic.

Mistake #2: Mixing Up Stock Risk with Bond Risk (Reaching for Yield)

Because interest rates were low for so long, many investors got into the habit of "reaching for yield." They wanted a higher payout from their bonds, so they bought securities that behaved more like stocks.

This usually happens in two ways:

A. Overloading on Corporate Bonds

Corporate bonds pay a higher yield than U.S. Treasuries, but they introduce credit risk and market risk. When the economy hits a rough patch and the stock market crashes, lower-rated corporate bonds often decline right along with it.

If your bonds are supposed to be the "ballast" that keeps your portfolio steady when stocks plummet, having corporate bonds that drop at the exact same time defeats the purpose. When you go to rebalance and buy cheap stocks, you want your bonds to be flat or up—not down in the dirt with everything else.

B. Buying Callable Bonds

A callable bond offers a higher coupon rate, which looks great on paper. But it comes with a catch: the issuer can "call" (forcefully buy back) the bond if interest rates decline.

If rates drop, the company will send your money back to you. Now, you have to reinvest that cash in a market where everything is paying much less than it was before. You lose your high-yield stream right when you need it most.

Mistake #3: Putting Your Bonds in the Wrong Location (Location, Location, Location)

Where you hold your bonds is almost as important as which bonds you buy. This is called asset location, and it has a massive impact on your tax bill.

To ensure your plan is optimized for tax efficiency, you need to understand how placement affects different accounts:

• In Pre-Tax Accounts (401k / IRA): This is generally the best location for taxable bonds. Because the interest they generate will be deferred from your annual income taxes, it lets you grow these defensive assets without an immediate tax bite.

• In Roth IRAs (Avoid Bonds Here): Save this account for your high-growth assets. A Roth IRA is your "legacy bucket" and grows entirely tax-free, meaning you want your highest-expected-return investments here, not slow-moving bonds.

A lot of high-net-worth retirees have the vast majority of their wealth in tax-deferred accounts (like traditional IRAs and 401(k)s). Generally, this is a great place to hold bonds because you defer the taxes on the interest they generate.

Here is where I see people get this wrong:

• Bonds in a Roth IRA: A Roth is the most valuable tax-shelter you have—it grows 100% tax-free for the rest of your life (and your heirs' lives). You want your highest-returning, highest-growth assets (like stocks) in your Roth to maximize that benefit. Putting slow-growing, boring bonds there is a massive waste of precious tax-free space.

• Bonds in a Taxable Brokerage Account: Holding traditional bonds in a taxable account means you are hit with ordinary income taxes on the interest every year. That interest income can artificially inflate your tax bracket, potentially crowding out your ability to do smart tax-planning techniques (like Roth conversions) in early retirement. (If you must hold fixed income in a taxable account, you should look at tax-advantaged alternatives, like Municipal Bonds).

Optimize Your Ballast Before You Exit

Bonds aren’t meant to make you rich; they are meant to keep you rich so you can sleep at night when the market gets volatile.

If you are in your early 60s with a multi-million dollar portfolio, ensuring you have the right mix of fixed income—and that those assets are in the right place—is essential to a confident transition.

At Barrett FP LLC, we offer hourly, advice-only financial planning. We don't manage your assets or earn commissions on financial products—we just provide the objective, fiduciary analysis you need to verify your portfolio is ready for the years ahead.

Schedule a portfolio review to analyze your bond strategy: