Savings Strategies for Individuals Near Retirement

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If retirement is just a few years away, you may be wondering whether you’re prepared to ride into the sunset with your nest egg. Generally speaking, you'll need to have about 80% to 100% of your final pre-retirement income to maintain your lifestyle when you're not working anymore.

In this article, we'll go over a few tips that could help boost your savings before retirement.

5 money tips for near-retirees

1. Consider shifting retirement savings to high gear

With retirement around the corner, it’s a good time to fully fund those retirement accounts. Don’t worry if you haven’t been able to max out your contributions every year. The IRS offers individuals age 50 and older a chance to play catch-up. Catch-up contributions provide an opportunity for you to save beyond the standard annual limit and put some additional money away toward your retirement.

For 2024, the standard annual contribution limit to a 401(k) is $23,000 ($22,500 for 2023), and the catch-up contribution limit is $7,500 for both 2023 and 2024. In other words, if you’re at least 50 years old, you could contribute up to $30,500 to your 401(k) plan in 2024 (or $30,000 in 2023).

If you have an IRA and are age 50 and older, for 2024 you can put away up to a total of $8,000 ($7,000 in standard annual contribution + $1,000 in catch-up contribution). For 2023, the standard annual contribution limit is $6,500 and the catch-up contribution limit is $1,000, bringing the total contribution limit for those age 50 and older to $7,500.

Remember, every extra bit helps, so consider taking advantage of this catch-up opportunity to make up for any gaps in your savings. See IRS's Catch-Up Contributions for more infromation or consult a tax professional if you have questions.

2. Check up on health care savings

You may still feel like a whippersnapper no matter your age. But while you’re plotting all the fun things you’ll do in retirement, long-term care is something that should also be added to your planning list.

The ever increasing cost of health care in the US can pose a real challenge for your budget in retirement.

For example, when it comes to long-term care, in 2021 the monthly median cost for certain in-home care services, such as a home health aide, was $5,148 according to Genworth, a provider of long-term care insurance. For assisted living facilities, it was $4,500. And a private room at a nursing home comes to $9,034.

It’s important to keep health care costs in mind as you think about your retirement savings goals. If you have a high deductible health plan (HDHP) through your employer, you might look into opening a Health Savings Account (HSA) and contribute to it while you’re still working.

HSAs are popular due to the potential tax savings they could provide. Your HSA funds are dedicated toward paying for certain qualified health care expenses like prescriptions and medical copays. You may even be able to tap into your HSA to help pay for a qualified long-term care insurance policy.

3. Know your government benefits

Depending on when you retire, you may be eligible for Medicare and Social Security benefits. Medicare is a health insurance program offered by the federal government, which can help qualified individuals pay for the costs of certain health care expenses and medical services. Generally, retirees who are 65 years or older can sign up for Medicare.

You may sign up to receive Social Security benefits three months before you turn 62 – this is the earliest age you can begin to collect payments. But as with other things in life, just because you can doesn’t necessarily mean you should. If you choose to collect benefits at 62, you will only receive a reduced portion of your “full retirement” benefits.

To be eligible to receive your full (read: unreduced) retirement benefits, you must wait until you’ve reached your full retirement age. The Social Security Administration (SSA) determines your full retirement age by the year you were born. So for example, if you were born before 1937, your full retirement age is 65. But if you were born in 1960, your full retirement age is 67.

Consider delaying Social Security benefits even after you’ve reached your full retirement age to maximize your benefits. That’s because the SSA will increase your Social Security payments by a set percentage for each year that you postpone your benefits (up until you turn 70). Visit the SSA webpage for more details.

Medicare and Social Security benefits can help defray certain expenses and provide supplemental income during retirement. So it’s important to review your eligibility status and plan accordingly. Remember, you’ve paid into these funds during your working years, so don't leave your benefits hanging out there.

4. Get smart on taxes

We’re not expecting you to start a second career in your retirement as a CPA. But knowing your tax obligations when you withdraw money from your retirement accounts can save you from some unpleasant tax surprises.

Generally, you can withdraw money from your Roth IRA with no taxes or penalties when you reach the age of 59½ (assuming you’ve had the account for at least five years). With a traditional IRA or 401(k) plan, on the other hand, you typically have to pay income taxes on your withdrawals. (Tax rules are always subject to change - always visit or check in with a tax professional for the most up-to-date information.)

Also, keep in mind that the tax treatment of different types of retirement accounts can be complex. So it’s a good idea to consult a financial advisor and/or a tax advisor to discuss potential ways to minimize your tax hits in retirement.

5. Make that estate plan

You may think only the ultra-wealthy need an estate plan. But if you own anything at all (e.g., real estate, financial accounts, furniture of questionable taste, etc.), you might consider putting together an estate plan.

Estate planning allows you to have an official say on who gets what and when after your passing. It’s about letting your family know your wishes and protecting them from any potential financial difficulties (and infighting) down the road.

Broadly speaking, getting your affairs in order can involve drawing up a will, assigning powers of attorney (this allows a designated person to legally act on your behalf), which can include an advance medical directive (this conveys your wishes regarding medical treatment if you are incapacitated).

Estate planning can be a stressful undertaking. But the key is to organize all your personal and financial records and then sit down with your family to discuss and convey your wishes in advance. When it comes to preparing for the end of life, an estate plan ensures that you are the one in control of your personal affairs and financial matters. If you don’t make these decisions, however difficult they may be, the probate laws in your state will decide for you after you die.

Bottom line

When you think about how you’re going to spend retirement, you might picture yourself kicking back at the beach, traveling the world or volunteering more in your local community. The possibilities are endless and that’s what’s so exciting about the next chapter. However you choose to spend your golden years, now is the time to check up on your finances, shift your savings into high gear and get yourself across the finish line.

This article is for informational purposes only and shall not constitute an offer, solicitation, or recommendation to buy or sell securities, or of an account type, securities transaction, or investment strategy. This article was prepared by and approved by Marcus by Goldman Sachs®, but does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendation in this article and it is not a substitute for individualized professional advice. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, none of which are a fiduciary with respect to any person or plan by reason of providing the material or content herein. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.

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