As you get closer to retirement, there are several ways you can boost your retirement nest egg. Here are some options to consider helping maximize your savings as retirement nears.
Did you know that if you are 50 or older, there are ways to increase your savings rate? This is known as the “catch up” provision. It is available for both corporate retirement plans, such as 401(k)s, and individual retirement accounts, such as traditional IRAs or Roth IRAs. Adding extra money to your retirement nest egg could help you reach some of your retirement income goals.
The maximum amount that workers can contribute to a 401(k) for 2021 is $19,500 for those younger than age 50. If you're age 50 and older by year-end, you can add an extra $6,500 per year in "catch up" contributions, bringing your total 401(k) contributions for 2021 to $26,000.
Workers age 50 and older can make an extra $1,000 catch-up contribution to an IRA in 2021, for a maximum possible IRA contribution of $7,000 in 2021.
Does your health care plan offer a health care savings (HSA) option? These are pre-tax savings accounts that offer tax-free withdrawals for health care-related expenses. This is another way to save for your retirement expenses before you retire. HSAs offer catch up contributions for those over the age of 55.
For those 55 years and older, the 2021 HSA catch-up contribution limit remains the same at $1,000. With a catch-up contribution, people who have self-only coverage can contribute up to $4,600 in 2021; those who have family coverage can contribute a maximum of $8,200.
Have you researched your health care options in retirement? For most people, spending on health care becomes one of the top three largest expenses in retirement. There are many different options to choose from for those over age 65. Depending on your health care needs and your access to health care, finding an affordable health care insurance policy can take some time and research.
Does your company have a pension plan? If so, you need to make sure you understand the rules of how the pension payments are determined. These are company-specific, but small changes in how much you get paid and how many total years you work can make a big difference. If you are married, there are typically options to have the payments last for your lifetime and your spouse’s lifetime. That joint and survivor option normally reduces how much you get each month, but it protects the income if something should happen to the person receiving the pension. That decision must be made before you start taking the pension income.
When are you going to take Social Security? The timing of when to claim Social Security should not be taken lightly. Let’s say your full retirement age for Social Security is 67, which is the full retirement age for anyone born after 1960. You could start claiming as early as age 62, but for every year you take your Social Security early, you reduce your benefit by 6%. For every year you delay taking your Social Security (age 68 to 70), you increase your benefit by 8%. This income lasts for your lifetime, so making the right decision for when to take Social Security in retirement is vital. If you need help in weighing your options, search LetsMakeAPlan.org for more insight on claiming Social Security or to find a CFP® professional that can help you.
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