Are you worried that you may need to work far into the future, or change your lifestyle dramatically in retirement, or both? How do your retirement savings compare to others’?
The Average “Jane”
For many people, an employer sponsored 401(k) retirement savings plan houses their largest retirement account. Vanguard, one of the nation’s biggest providers of these accounts, found its participants had the following average 401(k) balances in 2022:
| Younger than 25 | $5,236 |
| 25-34 | $30,017 |
| 35-44 | $76,354 |
| 45-54 | $142,069 |
| 55-64 | $207,874 |
| 65 and older | $232,710 |
How Much Do I Need?
The answer to this question is highly individual. It depends on your income sources, spending patterns, cost of living in your area, and retirement lifestyle goals. There are rules of thumb, however. Financial firm Fidelity suggests people save for retirement using the following rule of thumb based on their annual income: 6X their annual income in savings at age 50; 8X at age 60; and 10X at age 67. Some advisors suggest even more aggressive savings goals.
It is apparent that many Americans are falling short. According to the Bureau of Labor Statistics, the average American annual wage across all occupations as of May 2023 was $65,470. That means the average retirement savings at age 67 should be $645,700, based on Fidelity’s guidelines.
If your retirement savings fall short, do not become discouraged! The SECURE Act of 2022 offers a way to boost your savings if you are in your 60s!
Catch-Up Contributions
Starting in 2025, participants in Roth or Traditional 401(k) or other employer-provided retirement plans [403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan] who are ages 60 through 63 are allowed to make a catch-up contribution of up to $10,000 or up to 150% of the regular catch-up contribution amount for those 50 and older — whichever is greater.
In 2025, workers 50 and older can make up to $7,500 in catch-up contributions, in addition to the $23,500 limit for those younger than 50, for a total of $31,000. Under a change included in the SECURE 2.0 Act of 2022, starting in 2025 a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans.
For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500. The total contribution limit for 2025 is then $34,750 ($23,500 plus $11,250) for those in this select age group.Going forward, both the regular catch-up and the extra catch-up for those in their early 60s will be adjusted for inflation.
When Can I Retire?
Good question! The increased contribution limit, if you take advantage of it, might make a difference when you can retire. How will you know? I recommend that, if you have not already, you sit down with a financial advisor or financial planner who is a fiduciary and go through your numbers. Don’t wait! The peace of mind that assurance about your future will give you is priceless! Some studies show that retirement savings of those who worked with an advisor improved substantially over self-management.
How can you find an advisor who is a fiduciary and why is that important? A fiduciary is an individual who is ethically bound to act in another person’s best interest. Fiduciary financial advisors must avoid conflicts of interest and disclose any potential conflicts of interest to clients. Look for a Registered Investment Advisor (RIA) or a CERTIFIED FINANCIAL PLANNER®professional. You can search for an advisor in your area who is a CFP® professional at the following website: https://www.letsmakeaplan.org/.
Questions to Discuss:
Are you ahead of, at the average, or behind in your retirement savings? Were you aware of the 2025 increased contribution limit for 60-63-year-olds? Do you plan to take advantage of the new limit?
