5 Years to Retirement Age? Here’s 3 Things to Consider Now

by Amanda Thomas, MS, CFP®, CDFA™ Client Advisor
February 27, 2023
Preparing for retirement with Mission Wealth.

Partner and Client Advisor Amanda Thomas explains the top 3 items to consider when planning for retirement. Mission Wealth specializes in helping pre-retirees optimize their tax benefits, estate planning considerations, and wealth strategies prior to leaving the workforce.

Are you approaching retirement in the next 5 years? While there are many retirement events we help you prioritize, there are three important updates on the SECURE Act 2.0 that you should consider beforehand.

When you retire and your paychecks end, your retirement accounts will be the cornerstone to meeting your cash flow needs, paired with any pensions, Social Security, and other ongoing income sources. You are most likely in your highest income earning years and any contributions to your IRAs or employer retirement plan will provide a more significant tax deduction. Once you retire and no longer have earned income, you lose the ability to make tax-deductible additions to your retirement accounts. Taking advantage of maximizing your pre-retirement income is the best strategy.

3 Financial Considerations Before Retirement

The SECURE Act 2.0 has several provisions that could help you boost your retirement accounts while still employed in these final years:

  1. 2023 – Maximize the employer plan match AND “catch-up” if you are over age 50. In 2023, anyone over age 50 can contribute up to an extra $7,500 to their 401(k), or similar plan. Starting in 2024, there will be limitations on this catch-up.
  2. 2024 – Starting in 2024, if your income is greater than $145,000 in the prior tax year you will no longer be allowed to direct your catch-up to the tax-deductible portion of your employer plan and must make it to a non-deductible Roth.
  3. 2025 through 2028 – If you are age 60, 61, or 62, you can increase your employer plan catch-up in the amount of $10,000 or 150% of the applicable catch-up limit from the prior year (whichever is greater).

Factor in the New RMD Age

Once you retire you typically experience a reduction in income and therefore are placed in a lower tax bracket. Any of the above new provisions can help you take advantage of a higher tax deduction when income is highest during employment. There is an incentive to deploy as much in excess savings as possible to take advantage of these deductions as they change or become available.

Lastly, note that the age for required minimum distributions (RMDs) will be 73 starting in 2023 and will then extend out even further to age 75 starting in 2033. It’s important to note that RMDs will be unchanged for those who turned age 72 prior to 2023. Therefore, the more you can save for retirement now, the longer the term your investments can grow tax deferred.

This may be your first time retiring, but it's not ours. You will face many decisions when deciding the best time to retire. Let us guide you through your options and create a plan that works now, and later.
Contact Us Today
Retirement Planning with Mission Wealth

Mission Wealth Can Help You Retire with Confidence

This may be your first time retiring, but it's not ours. Careful coordination is required to ensure your retirement income strategy is tax-efficient and sustainable. You will face many decisions when retiring. Let us guide you through your options and create a plan.

Mission Wealth’s vision is to provide caring advice that empowers families to achieve their life dreams. Our founders were pioneers in the industry when they embraced the client-first principles of objective advice, comprehensive financial planning, coordination with other professional advisors, and proactive service. We are fiduciaries, and our holistic planning process provides clarity and confidence. For more information on Mission Wealth, please visit missionwealth.com.

To meet with a Mission Wealth financial advisor, contact us today at (805) 882-2360.

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