Savings Strategies for Individuals Near Retirement

January 9, 2025

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If retirement is just a few years away, you may be wondering whether you’re financially prepared for your golden years. 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. But keep in mind that everyone's financial situation is different, and if you have questions about your retirement readiness, it's a good idea to speak with your financial advisor.

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

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 toward your retirement.

For instance, if you have a 401(k):

The standard annual contribution limit for 2025 is $23,500. But if you’re age 50 or older (and your plan allows it), you could make an additional catch-up contribution of up to $7,500. In other words, you could contribute up to a total of $31,000 ($23,500 + $7,500) to your 401(k) plan in 2025.

Important: Under SECURE Act 2.0, starting in 2025, 401(k) plan participants age 60 to 63 will have a higher catch-up contribution limit. The higher catch-up contribution limit for 2025 is $11,250 (instead of $7,500). This means that those age 60 to 63 could contribute up to a total of $34,750 to their 401(k) in 2025. See the IRS press release here for more information.

If you have an IRA:

The standard annual contribution limit for 2025 is $7,000. But if you’re age 50 or older, you can make an additional catch-up contribution of $1,000, which means you could contribute up to $8,000 total ($7,000 + $1,000).

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 information or consult a tax professional if you have questions.

Good to know: Contribution rules and limits are always subject to change. The IRS website is your official source for the most up-to-date information.

2. Check up on your healthcare savings

The ever-increasing cost of healthcare in the US can pose a real challenge for your budget in retirement, so it’s important to keep healthcare costs, including long-term care, in mind as you think about your retirement savings goals. If you have a high deductible health plan (HDHP), you might look into opening a Health Savings Account (HSA) and contribute to it while you’re still working.

The money you put into your HSA is dedicated toward paying for certain qualified healthcare 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. You can read more about how HSAs work in our article here.

3. Understand your government benefits

Depending on when you retire, you may be eligible for Medicare and Social Security benefits, which can help defray certain healthcare expenses and provide supplemental income during retirement. So it's important to review your eligibility status and plan accordingly.

Medicare is a health insurance program offered by the federal government, which can help qualified individuals pay for the costs of certain healthcare expenses and medical services. Generally, retirees who are 65 years or older can sign up for Medicare. Visit medicare.gov for more information.

You can start receiving your Social Security retirement benefits as early as age 62 according to the Social Security Administration (SSA). However, keep in mind that 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 (or unreduced) retirement benefits, you must wait until you’ve reached your full retirement age. The SSA determines your full retirement age by the year you were born (see the agency's retirement age calculator here). You can visit the SSA's "Starting Your Retirement Benefits Early" webpage for more details on how benefits are determined.

If you have questions about your specific situation, you may also consult a financial advisor.

4. Get smart on taxes

Knowing your tax obligations when you withdraw money from your retirement accounts can save you from potential tax surprises.

Here are a few basic account withdrawal rules to keep in mind: 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). See "What Are Qualified Distributions?" in IRS Publication 590-B for details.

With a traditional IRA or 401(k) plan, on the other hand, generally you may begin to make penalty-free withdrawals at age 59½, but the money you take out is subject to income tax.

Bottom line: Different types of retirement accounts have different tax treatments, and IRS withdrawal rules can be complex. Always visit the IRS webpage for the latest guidance. It’s also a good idea to consult a financial or tax advisor if you’re exploring potential ways to minimize your taxes in retirement.

5. Put together an estate plan if you haven't already done so

Estate planning gives you the opportunity to let your final wishes be known. Many of us don’t like to think about dying. But it’s important to leave behind clear instructions on how you’d like your affairs to be settled and who should be carrying out those wishes for you.

When it comes to the distribution of your assets, estate planning also allows you to have a say on who gets what – which can help minimize confusion and the chances of conflict between family members.

Broadly speaking, getting your affairs in order can involve drawing up a will and 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.

Bottom line: An estate plan ensures that you are the one in control of your personal affairs and financial matters. If you don't have a will or estate plan when you die ("dying intestate"), your assets will pass based on the laws in your state.

This article is for informational purposes only and is not a substitute for individualized professional tax advice. Individuals should consult their own tax advisor for matters specific to their own taxes. 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 recommendations in this article. 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. 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 of any information contained in this document and any liability therefore is expressly disclaimed.