How Much Should I Contribute to a 401(k) in My 50s?

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When it comes to 401(k) plans, the IRS really wants workers to crank up their contributions when they reach their 50s — so much so that the agency allows workers 50 and older to make “catch-up” contributions in case they fell behind earlier in life. The IRS wants to ensure that people without adequate retirement savings can make a final dash before they leave the workforce.

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Thanks to a new rule unveiled last week, you’ll be able to contribute even more in 2023 in terms of both regular contributions and catch-up contributions. On Oct. 21, the IRS announced that the yearly 401(k) contribution limit will rise to $22,500 in 2023 from $20,500 in 2022.

The catch-up contribution limit rises to $7,500 in 2023 from $6,500 in 2022. Under these new limits, participants in 401(k) plans who are 50 and older can contribute up to $30,000 starting in 2023.

Most financial experts advise people in their 50s to max out their 401(k) contributions if they have the finances to do so, because there is a limited amount of time to build up your nest egg. As of 2021, the average retirement age in the United States is 65 for men and 62 for women. This means by the time you exit your 50s, you are likely to retire within the next half-decade. Contributing the maximum is a good idea even when the stock markets are down, as they have been in 2022.

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“If you’re 50 years old and plan to retire in 15 years, your best bet may be to keep socking away money in your 401(k) or IRA in the same proportions as you have been,” financial author John Waggoner wrote in a blog for AARP.

One thing you don’t want to do is reach retirement age having to depend too heavily on Social Security — even with the 8.7% cost-of-living adjustment set to kick in next year.

“For older workers, it’s important to look at this in the context of the recent Social Security increase,” Kelly LaVigne, vice president of consumer insights at Allianz Life, told GOBankingRates in an email. “Just because Social Security benefits went up doesn’t mean people need to save less. It’s a little counterintuitive, but the government is recognizing that retirement is getting more expensive, so in addition to seeing increased Social Security benefits, Americans need to proactively be putting away more now.”

The good news for employees in their 50s is that they are still in their highest earning years. American workers ages 45 to 54 earn a median yearly income of $63,648, according to the Bureau of Labor Statistics. That’s the highest of the six age groups tracked by the BLS. Workers ages 55 to 64 earn a median income of $60,944 a year, which is third highest.

Learn: 6 Types of Retirement Income That Aren’t Taxable

Retire Comfortably

Meanwhile, many people in their 50s have already paid off mortgages and other big debts, freeing up more money for retirement savings. Some might also be empty nesters who have already put their kids through college, though that’s less likely now that in decades past. The FinanceBuzz website lists college tuition as the top major expense for people in their 50s, followed by maximizing retirement savings.

If you need an overall retirement savings target to shoot for, Fidelity Investments recommends saving at least 15% of your pre-tax income each year, which includes any employer 401(k) match.

“The ultimate goal is to save 10 times your salary by the time you are 67,” Fidelity Vice President Meghan Murphy told US News & World Report.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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