5 Catch-Up Strategies to Boost Your Retirement Readiness

Building a robust nest egg during your career is crucial for a worry-free retirement. Yet, many find themselves in the challenging position of starting their retirement planning later than they’d hoped. Recent data paints a concerning picture: a recent CNBC and SurveyMonkey survey revealed that over half of Americans feel they’re lagging in retirement preparations, with a significant number anticipating dependence on Social Security and other government programs in their later years. This finding highlights the pressing need for effective “catch-up” strategies—targeted approaches to accelerate savings as retirement looms closer.

These catch-up tactics are more than just savings boosters; they’re practical tools to optimize your retirement resources and close the gap between your current savings and your retirement goals. In this article, we’ll uncover both well-known and under-utilized methods to enhance your financial readiness for retirement, offering a roadmap to a more secure future.

5 Catch-Up Strategies to Boost Your Retirement Readiness

#1: Maximize Catch-Up Contributions

If you’re 50 or older, you’re eligible to make catch-up contributions—additional amounts you can contribute to certain retirement accounts beyond the standard annual limits. By leveraging these higher contribution limits, you can accelerate your savings and potentially improve your financial security in retirement.

As of 2024, the following IRS limits apply to catch-up contributions:

  • 401(k), 403(b), and most 457 plans. If you’re at least 50 years old, you can contribute an extra $7,500 annually on top of the standard $23,000 limit.
  • Traditional and Roth IRAs. Those aged 50 and above can contribute an additional $1,000 to the standard $7,000 limit.

Catch-up contributions provide a valuable opportunity to make up for lost time and take advantage of tax-deferred or tax-free growth leading up to retirement. This makes them one of the most effective retirement catch-up strategies you can leverage, especially if you started saving late or experienced financial setbacks during your career.

#2: Take Advantage of Your Employer Match

An employer match is a valuable benefit many companies offer to their employees. Essentially, your employer agrees to contribute a certain amount to your retirement account based on your own contributions. This is often described as “free money” because it’s additional compensation above your regular salary.

For example, your employer might offer to match 50% of your contributions up to 6% of your salary. If you earn $150,000 annually and contribute 6% of your salary ($9,000) to your 401(k), your employer would contribute an additional $4,500. Over time, this match can significantly boost your retirement savings due to the power of compounding.

Here are a few tips for maximizing your employer match:

  • Understand your company’s matching formula.
  • Contribute at least enough to get the full match.
  • If possible, increase your contributions gradually to reach the maximum match.

Not taking advantage of your employer match is essentially leaving free money on the table. While it may require tightening your budget in other areas, prioritizing contributions to get the full employer match can have a substantial impact on your long-term financial security

#3: Contribute to a Health Savings Account (HSA)

A Health Savings Account (HSA) is a versatile financial tool that can serve both your current healthcare needs and future retirement goals. It’s a tax-advantaged savings account designed to help individuals with qualifying high-deductible health plans (HDHPs) cover medical expenses.

The benefits of contributing to an HSA are numerous:

  • Triple Tax Advantage. Contributions are tax-deductible, grow tax-free, and withdrawals for qualified medical expenses are tax-free.
  • Portability. Unlike Flexible Spending Accounts (FSAs), HSAs aren’t tied to your employer and stay with you even if you change jobs.
  • Enhanced Retirement Savings. After age 65, you can withdraw funds for any purpose without penalty (though non-medical withdrawals are taxed as ordinary income).

As of 2024, the annual contribution limits are $4,150 for single coverage and $8,300 for family coverage. Moreover, the IRS allows those aged 55 and older to contribute an extra $1,000 above their annual limit.

Some financial professionals recommend maxing out your HSA even before your 401(k), after securing any employer match. This approach can provide flexibility and tax benefits that complement your overall retirement plan, making them an effective catch-up strategy for eligible savers.

#4: Consider Executing a “Mega Backdoor Roth”

A mega backdoor Roth is an advanced retirement savings catch-up strategy that allows high-income earners to contribute significantly more to a Roth IRA than traditional limits allow. This technique involves making after-tax contributions to a 401(k) plan and then immediately converting those funds to a Roth IRA or Roth 401(k).

The primary benefit of a mega backdoor Roth is the ability to contribute extra cash to your Roth accounts, up to $46,000 above the standard limits in 2024. This strategy allows for substantial tax-free growth and tax-free withdrawals in retirement.

However, it’s important to note that your 401(k) plan must allow after-tax contributions and in-service distributions or rollovers to take advantage of this catch-up strategy. In addition, timing is crucial to minimize tax implications. Given these complexities, it’s wise to consult with an experienced financial advisor, who can help you make the most of this powerful retirement planning tool.

#5: Catch Up on Retirement Savings with a Spousal IRA

A spousal IRA is a retirement catch-up strategy that allows a working spouse to contribute to an Individual Retirement Account (IRA) on behalf of a non-working or low-earning spouse. This approach can be particularly beneficial for couples where one partner has limited or no income, such as stay-at-home parents or those who’ve taken time off from their career.

To be eligible for a spousal IRA:

  • You must be married and file a joint tax return.
  • One spouse must have earned income equal to or greater than the total IRA contributions for both spouses.

A spousal IRA can significantly boost a couple’s retirement savings by allowing both partners to contribute to IRAs, even if only one has earned income. As of 2024, each spouse can contribute up to $7,000 annually ($8,000 if age 50 or older) to their respective IRAs, potentially doubling the household’s IRA savings.

Let Milestone Asset Management Group Guide You Toward a Secure Retirement

As retirement approaches, the importance of adequate savings becomes increasingly clear. While these catch-up strategies can significantly enhance your retirement readiness, keep in mind that retirement planning is a highly personalized journey. The most effective strategies depend on your unique circumstances and aspirations.

At Milestone Asset Management Group, we specialize in guiding you through this complex landscape. Our experienced advisors can help you identify which strategies align best with your goals and integrate them into a comprehensive retirement plan tailored specifically to your needs.

If you’re ready to take a proactive step toward a more secure retirement, we invite you to schedule an introductory meeting with us.