Reaching your 60th birthday means you’ll probably be retiring in a few years, but it doesn’t mean you should slow down on your retirement savings. On the contrary, most financial experts say you should keep putting as much money as you can into your retirement savings accounts, including your 401(k).
This is easier when you are in your 60s because your earnings are probably still at or near a career high, and chances are you’ve paid off your mortgage and no longer have to worry about your kids’ expenses. Because of these two dynamics, you should aim to max out your 401(k) contribution limit.
This is a good time to do so because the contribution limit is set to go much higher beginning next year. 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 for workers 50 and older 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.
Maxing out your 401(k) contribution is especially important in your 60s because you have a limited amount of time to add to your retirement savings. As of 2021, the average retirement age in the United States is 65 for men and 62 for women.
With the contribution limit set to rise in 2023, this is a great opportunity to quickly build up your 401(k) balance.
“People in their 50s and 60s can use the increase in both the contribution limit and the make-up limit to really put away money for retirement,” said Lisa Featherngill, national director of wealth planning at Comerica Bank, in an email statement to GOBankignRates “These individuals tend to be the highest earners and should be able to maximize the contributions.”
Indeed, American workers ages 55 to 64 earn a median yearly income of $60,944, according to the Bureau of Labor Statistics (BLS). That’s the third-highest of the six age groups tracked by the BLS.
One thing you don’t want to do is depend too heavily on Social Security when you reach retirement age. Even with the 8.7% cost-of-living adjustment set to kick in next year, Social Security is not intended to finance your retirement.
“For older workers, it’s important to look at this in the context of the recent Social Security increase,” said Kelly LaVigne, vice president of consumer insights at Allianz Life, in an email to GOBankingRates. “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.”
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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