Boosting Retirement Savings: A New Opportunity for Older Workers
As many Americans struggle to save enough for retirement, a significant change to 401(k) plans is set to provide a much-needed boost for older workers. The IRS has announced higher 401(k) contribution limits for 2025, with employee deferrals increasing to $23,500, up from $23,000 in 2024.
A Golden Opportunity for Those 60-63
Starting in 2025, investors aged 60 to 63 can make catch-up contributions of up to $11,250 on top of the $23,500 deferral limit. This means they can defer a total of $34,750 for 2025, a 14% increase from 2024. According to certified financial planner Jamie Bosse, “This can be a great way for people to boost their retirement savings.”
The Reality of Retirement Planning
Roughly 4 in 10 American workers are behind in retirement planning and savings, mainly due to debt, insufficient income, and getting a late start. A recent survey found that 35% of baby boomers feel “significantly behind” in retirement savings.
Increased Contribution Limits
For 2025, the “defined contribution” limit for 401(k) plans, which includes employee deferrals, company matches, profit sharing, and other deposits, will increase to $70,000, up from $69,000 in 2024.
Making the Most of 401(k) Plans
While the 401(k) catch-up contribution change is “very good” for older workers who want to save more for retirement, many are not taking advantage of these plans. Only 14% of employees deferred the maximum amount into 401(k) plans in 2023, and just 15% of workers made catch-up contributions.
Deferral Rates Increase with Age and Income
According to Vanguard’s 2024 How America Saves report, 401(k) plan deferral rates typically increase with income and age. Participants under age 25 saved an average of 5.4% of earnings, while workers ages 55 to 64 deferred 8.9%.
Seizing the Opportunity
With these changes, older workers have a unique opportunity to boost their retirement savings. By taking advantage of increased contribution limits and catch-up contributions, they can secure a more comfortable financial future.
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