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Recalibrating For Your Retirement
How To Catch Up On Retirement Contributions Post-COVID
On top of all the other disruption (and worse) caused by the pandemic, COVID-19 may have put a real dent in your progress towards saving for retirement. Did your workplace close temporarily, or did you have to temporarily leave the workforce? Did your employer pause matching contributions, or did you find yourself needing to take a coronavirus-related distribution? Or did the uncertainty of the last year just cause you to pause your own contributions? Regardless of why you got off track, with the economy booming, now’s a great time to get back on! There are steps that can set you on your path again, determined by your age, situation, and whether you’re able to make catch-up contributions.
If You’re Under 50:
If you’re in your 40s or younger, you likely have many years of investing and saving for retirement ahead of you. You can use a financial planner or online calculator to help determine how much income you’ll need in retirement in order to identify how much you need to save now to meet your projected future retirement income needs. In this age bracket, a great way to boost your retirement savings is to take full advantage of a retirement plan. If you have a 401k, for instance, the max you can contribute in 2021 for this age group is $19,5001; that money will be hard at work for you over the rest of your career. If you can’t set aside that much, contribute at least as much as the amount your employer matches, otherwise you’re effectively leaving money on the table.
If You’re Between 50-60:
You might be ambivalent about your 50th birthday, but once you hit this milestone, you’re able to make up catch-up contributions to your retirement savings plan to make up for lost time. The rules start in the calendar year in which you turn 50; so if your 50th birthday falls before 12/31/21, you may make catch-up contributions all year long! At age 50, the maximum 401k catch-up amount is $6,500, which means you’re permitted to put up to $26,000 (total) into a 401k this year, and for every year thereafter.
If You’re 60 or Older:
If you’re over 60 and aren’t feeling that you’re where you want to be on your retirement savings trajectory, don’t despair – there are still options besides taking advantage of the catch-up contributions detailed above. The most obvious one is to work a few more years, to allow for depositing more into your retirement accounts. You can also choose to delay when you start receiving your Social Security benefits. The later in life you start, the larger your benefits will be when you begin collecting, and for the rest of your life. For instance, those who were born between 1943-1954 reach full retirement age at 66. But if they delay receiving benefits until age 67, they’ll receive 108% of their monthly benefit; if they delay till age 70, that goes up to 132%!2
1Contribution and catch-up contribution limits are for 2021. Limits are updated annually by the IRS. Current amounts can be found at irs.gov.
2Social Security Administration, Retirement Benefits, May 2021.
