The IRS is boosting how much Americans can plow into their 401(k) plans due to a surge in inflation, and along with that extending a 9% cost-of-living adjustment for Social Security benefits in 2023, the highest percentage increase since 1981.
The contribution limits for the popular tax-deferred retirement savings accounts will rise by $2,000 to a maximum of $22,500 in 2023, the biggest dollar increase since 2007, when the maximum amount allowed was $15,500. The changes mean that retirement savers who are 50 or older can now save a combined $30,000 a year in their 401(k)s, between the new limit and the increase to $7,500 for catch-up contributions.
Meanwhile, the cap on the amount contributed to Individual Retirement Accounts, known as IRAs, will be $6,500 next year, up from $6,000 in 2022.
Rising benefits gives investors more options when creating an optimal retirement funding strategy. With the stock market down 25% over the past year and Social Security payments rising to a maximum benefit of $4,485 in January, even well to do clients’ would be smart to reexamine their options when deciding what assets to tap first to maximize and extend the longevity of a retirement portfolio.
When it comes to deciding when to start benefits, we are urging clients to look at all their choices. Wait until age 70, and you’ll be able to grow your Social Security benefits by 8% a year. Many do not want to cash in their investments with stocks down double digits. For those who have a spouse with richer Social Security benefits, tapping their own, lesser benefit early can make sense—especially if they’ll invest the proceeds. It may make sense for one to claim early to get an income stream started and invest the monthly payment strategically.
Many retire earlier than they expect and live longer than they estimate, and run out of funds. Estimate your longevity, and take into account that one spouse may live longer than the other. Running some projections may keep you from jumping the gun on claiming Social Security benefits early. Talk to us before making any decisions.
Reach out to us: Two things are for certain: 1) Everyone should be interested in talking with a financial advisor about creating income streams that would allow them to delay their Social Security benefits; and 2) Couples should be interested in discussing spousal benefit strategies for Social Security with a financial advisor. I, Paul Wieseneck, CPA, am also a Registered Social Security Analyst (RSSA) and can help you prepare for your financial future with greater knowledge and guidance about Social Security planning. Please feel free to contact me directly at 561-209-1102, with any questions.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
