3 Key Financial Moves Boomers Should Make Before Retiring This Year
Written by
Heather Taylor
Edited by
Gary Dudak
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Only six months remain between now and the end of the year. For baby boomers planning to retire in 2024, they’ll want to make sure they’re prepared so they are able to enjoy a comfortable, financially secure retirement.
What should you focus on as you start getting your retirement ducks in a row? Keep reading to learn which three financial moves boomers need to make before retiring this year.
Max Out Your Retirement Account Contributions
The final year of a boomer’s career, with its higher income and bonuses, is an excellent time to accelerate retirement savings. David Edmisten, CFP and lead advisor at Next Phase Financial Planning, recommends putting this money towards increasing investment contributions.
What do the contribution limits look like in 2024? Here’s a quick breakdown for key accounts:
- 401(k) and other workplace retirement savings plans. The contribution limit is $23,000 for 2024.
- IRA accounts. For those under age 50, the contribution limit is $7,000 in 2024. Contribution limits for those ages 50 or older are $8,000 this year. Catch-up contributions are also allowed for IRA and 401(k) accounts for those ages 50 and over.
- HSA account. According to Edmisten, individuals may contribute up to $4,150 to an HSA in 2024. Those on a family plan are allowed to contribute up to $8,300. An extra “catch-up” contribution of $1,000 per year is allowed for ages 55 and older. Spouses age 55 and older can make this catch-up contribution if each partner has their own HSA account.
If you will not work through December 1, 2024, be careful about the amount of money you contribute. Edmisten said this is because eligibility for the full contribution is based on being a participant in the plan through December 1 to count for the full year. Boomers planning to retire mid-year, for example, would not be able to contribute the full annual limit.
Set Cash Aside in a High-Yield Savings Account
According to Chris Urban, CFP and founder at Discovery Wealth Planning, one of the biggest mistakes people approaching retirement make is not positioning enough liquid funds in reserve accounts before they retire.
While this is a process Urban recommends starting three to five years before ending full-time employment, he said boomers retiring this year should build up cash in a high-yield savings account. Ideally, this should be anywhere from two to four years’ worth of living expenses.
The more years of living expenses boomers can contribute to this type of reserve account, the better.
“This (largely) removes the market-timing risk as you withdraw funds over a multi-year period,” said Urban. “Furthermore, it reduces your exposure to sequence-of-return risk early in retirement as you can withdraw from this reserve account as needed for living expenses should the market (and your investments) underperform.”
Edmisten also recommends setting aside a cash reserve of 18 to 24 months’ worth of expected spending to ensure boomers enter retirement confidently.
“You can plan to set up a recurring monthly withdrawal from your cash reserve to your checking account once you enter retirement, so the funds are ready to spend when you need them,” he said.
Consolidate Your Relationships With Financial Companies
Most boomers know the importance of reducing any unnecessary financial headaches, like paying off debt or downsizing from an expensive home to a more affordable one, before they retire. What is less discussed is Urban’s recommendation to reduce your investment and retirement accounts and simplify the makeup of each account.
Urban cites the employer-sponsored 401(k) plan as an example. Before consolidating this plan, ask yourself:
- Does the 401(k) administrator offer education or support? If they do, do you need it in retirement?
- Are there any investment choices offered as part of the plan? If yes, are these choices low-cost, broad-based index funds or more limited, expensive funds?
- How do you plan to draw down assets from your retirement and non-retirement investment accounts for income to live on during retirement?
Boomers between ages 55 and 59 and a half that are retiring this year may find benefits in keeping some assets in their 401(k) plan. Urban said this would allow them to leverage the rule of 55 and avoid the 10% early withdrawal penalty.
Boomers who are 59 and a half, or older, that are interested in partnering with a professional advisor and have limited investment options might, Urban said, do a direct rollover of the account. This would rollover funds to a traditional IRA or Roth IRA for access to a broader selection of funds while reducing your retirement accounts.
More From GOBankingRates
