Just the Tip:
From the year you turn 50, catch-up rules let you add $8,000 a year to a 401(k) and $1,100 to an IRA beyond the regular limits. Raise your contributions to use them. Shift gradually toward bonds until a few years of retirement withdrawals sit in bonds and cash, so a crash can’t force you to sell stocks low.
Your 50s are the last decade when extra savings still have years to grow, and the first when a crash could hit just before you need the money.
The IRS’s catch-up rules stack the 401(k) catch-up on top of the regular limit of $24,500 a year. In the years you turn 60 through 63, the catch-up rises to $11,250 if your plan offers the higher amount. The IRA catch-up adds to the regular $7,500 limit.
At a hypothetical 6% annual return, an extra $8,000 a year in a 401(k) for the 10 years from age 55 to 65 grows to about $105,000.
To get the full catch-up, set your contribution rate to cover the regular limit plus the catch-up over the year. If your wages from your employer topped $150,000 last year, the catch-up has to go in as Roth money, taxed now instead of when you withdraw it. In that case, a plan with no Roth option can’t accept your catch-up at all.
Build the bond cushion gradually. Each year, move a little more of your savings from stocks to bonds, or send new contributions to bonds, rather than switching all at once. By your retirement date, aim to hold a few years of withdrawals in bonds and cash, since losses early in retirement do the most damage.
Start planning now, too, for when to claim Social Security and how you’ll pay for health insurance if you retire before Medicare begins at 65.
Raise your 401(k) contribution rate on your plan’s website before your next payday, since catch-ups come only out of paychecks and must go in before the plan year ends.
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