Retirement tips for the new year and soon-to-be retirees
February 14, 2024
The turn of the calendar from one year to the next often brings with it New Year's resolutions. In addition to improved health, making better financial decisions often tops people’s lists.
Some may choose to develop a plan for early retirement or simply take steps to ensure they don’t run out of money once they retire. Equipping clients and plan participants with the information they need to make informed decisions is one way to help them start the year (and retirement) on the right foot.
Here are common areas they’ll need to consider in their financial strategy, and tips to help them maximize their retirement savings.
Social Security
Social Security is a major source of income for more than 71 million Americans. Most agree that Social Security benefits on their own are not enough to sustain a comfortable lifestyle. That’s despite the Social Security Administration’s increase in monthly payments by 3.2% for 2024 and the 8.7% increase in 2023.1
For 2024, the average monthly Social Security benefit is $1,907 per individual and $3,033 for a couple who both receive benefits.2 It’s no small change, but rising inflation and the cost of living need to be taken into consideration. For example, food prices alone have risen by nearly 13% since 2021.3 Regardless of whether Social Security is keeping pace with the actual cost of living, individuals need to consider the role Social Security will play in their retirement.
RETIREMENT TIP: Encourage clients and plan participants to view their online Social Security accounts for a projection of their future benefits based on past earnings. The above-mentioned monthly average may not reflect their outlooks. Knowing their potential Social Security income can help set expectations and determine their retirement horizons. They’ll also be able to calculate potential benefits based on the timing of their retirements.
Medicare
Healthcare benefits may be a major concern in retirement, especially if someone retires before age 65, the age at which individuals can receive Medicare benefits.4
Some individuals incorrectly believe that healthcare is “free” once they reach age 65. While hospital coverage (Medicare Part A) is free for most recipients, individuals will still need to cover costs for deductibles and copayments for in-patient hospital stays beyond 60 days. Additionally, general medical insurance (Medicare Part B) and drug coverage (Medicare Part D) require the recipient to pay premiums, deductibles and coinsurance. For example, the premium for Medicare Part B in 2024 alone starts at $174.70 per month, and may be higher depending on a person’s income.4
RETIREMENT TIP: In the end, the average retiree over age 65 spends more than $7,500 each year on healthcare.5 When estimating healthcare costs in retirement, encourage recipients to budget for healthcare expenses beyond just their Medicare premiums.
IRA and 401k contribution limit increases
Those who wish to ramp up their retirement savings may want to increase contributions to their 401(k) or other retirement savings vehicles. For 2024, contribution limits for a 401(k), 403(b) and most 457 plans increase to $23,000, up from $22,500. Those 50 years and older can put up to $8,000 into an IRA in 2024, which includes a $1,000 catch-up contribution. That’s $500 more than in 2023.
To some, $500 may not seem like a lot. But if someone starts contributing those extra dollars now and continues to do so over the next 10 years or so until retirement, it could garner healthy returns depending on the market’s performance.6
RETIREMENT TIP: Ensure that plan participants and clients are aware of increased contribution limits for their 401(k), 403(b) and other retirement plans. Consider using projection calculators to help them see the potential returns those extra dollars may bring.
Required minimum distributions (RMDs)
During an employee’s working years, there’s a lot of emphasis on accumulating retirement savings. But there will come a time when savers need to become spenders.
In general, individuals have to start taking withdrawals from their IRA, SIMPLE IRA, SEP IRA or other retirement plan when they reach age 72. Failure to do so can result in a 50% excise tax penalty. An exception is a Roth IRA which won’t require withdrawals until after the death of the owner, which can be taken by the beneficiary under appropriate RMD rules. 7
A change for 2024 is that RMDs will no longer be required from designated Roth accounts in a 401(k) or 403(b) plan. Retirees who wish to delay their withdrawals can do so to take advantage of growth potential. 7
RETIREMENT TIP: Make sure that clients or employees who plan on retiring soon are aware of updated RMD rules. A consideration to explore is whether it’s better to delay withdrawals from a retirement account or to delay taking Social Security. Weigh the income potential for each to help make a determination. Depending on their situation, neither may be appropriate, but that’s where your guidance can play a crucial role.
It’s important to stay abreast of changing regulations from the IRS, Social Security, Medicare and other institutions. Subscribe to our blog for additional insights into these and other topics.
SOURCES
1Social Security Administration, Cost-of-Living Adjustment (COLA) Information for 2024, Accessed 2024, January 3
2Social Security Administration, Fact Sheet, Accessed 2024, January 3
3U.S. Dept. of Agriculture, Food Price Outlook, 2023 and 2024, 2023, December 21
4Medicare, What does Medicare cost?, Accessed 2024, January 3
5U.S. Bureau of Labor Statistics, Consumer Expenditure Surveys, 2022, 2023, September
6Internal Revenue Service, 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000, 2023, November 1
7Internal Revenue Service, Retirement Topics — Required Minimum Distributions (RMDs), 2023, April 20
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