For people hurtling toward retirement, the standard personal finance advice is to continue to fund your retirement accounts as aggressively as you can, including taking advantage of catch-up contributions.<\/p>\n
Investors who are over age 50 can contribute an additional $1,100 to an IRA in 2026, for a total contribution of $8,600. And if you\u2019re contributing to a company retirement plan, you can plow in $32,500 if you\u2019re over age 50. People who are between the ages of 60 and 63 can make what are called \u201csuper catch-up\u201d contributions to their 401(k)s, for a total 2026 contribution of $34,750. Thanks to the Secure 2.0 retirement legislation, high-income earners\u2019 catch-up contributions must go into Roth 401(k)s (rather than traditional tax-deferred 401(k)s) starting in 2026.<\/p>\n
Those additional contributions can add up to a tidy sum in retirement, especially for people who start at age 50, as my colleague Amy Arnott noted in a recent article<\/a>. Maxing out a 401(k) with catch-up and super catch-up contributions between the ages of 50 and 65 would translate to more than $200,000 in additional savings for retirement, assuming a 5% rate of return. (Amy notes that the actual number would be even higher, as contribution limits typically increase to keep pace with inflation.)<\/p>\n After age 60, however, those additional contributions simply have fewer years to compound, and the tax deferral isn\u2019t as valuable over a shorter time horizon, either. Of course, if you don\u2019t plan to touch the assets until their later years of retirement or you intend to leave the funds to your heirs<\/a>, it\u2019s well worth continuing to contribute; the compounding and tax-deferral benefits are magnified the longer the time horizon.<\/p>\n But if your retirement numbers are in relatively good shape, you can also afford to put more weight on financial decisions that give you peace of mind and even a bit more joy.<\/p>\n 4 Financial Decisions That Come With Psychological Benefits<\/p>\n Here are four spending strategies where the financial return might not be as great as additional retirement savings, but the psychological payoff is worth considering.<\/p>\n Strategy 1: Get Ahead of Big-Ticket Transactions<\/p>\n This strategy makes so much sense that I\u2019d shout it from the rooftop if I could.<\/p>\n As retirement approaches, it\u2019s helpful to forecast through the big-ticket outlays that your household might need to incur over the next two to five years. I\u2019m talking about big home repairs or improvements or cars that you\u2019ll need to replace. If you\u2019re still working, you can plan to fund them out of cash flows rather than putting additional funds into your retirement accounts.<\/p>\n Of course, you can build these expenditures into your budget for your retirement, too; forecasting budget changes is a best practice for retirement planning for people at all levels of wealth. But pushing those big-ticket outlays into your working years has a valuable psychological benefit. That\u2019s because pulling money from your investment accounts can be psychologically difficult, especially in the early years of retirement, when you\u2019re still getting your sea legs with the transition from saving to spending. That challenge can be especially acute for people who plan to delay Social Security for at least a few years after retirement; they\u2019ll be drawing all of their cash flow needs from their portfolios in those years. It\u2019s wise to not accentuate the spending during that period with additional big-ticket outlays; spending from working income is apt to be psychologically more palatable.<\/p>\n As you think through what you might want to spend on, lean into your vision of your days in retirement. Do you plan to spend more time pursuing your passion for cooking? If so, splurging on the new counters you\u2019ve wanted might be money well spent. If more road trips are in your future, lining up the safest, most reliable set of wheels that you can afford should be a priority.<\/p>\n My hunch is that it will be easier to part with the cash to get exactly what you want rather than waiting until you\u2019ve retired.<\/p>\n Strategy 2: Pay Down Debt<\/p>\n If you want to cause a dustup among financial types on social media, stick your neck out for or against prepaying a mortgage. The calculus usually boils down to which decision provides the better \u201creturn\u201d: debt paydown (and the relief from the interest service that accompanies the debt) or investing in something that offers a similarly safe return.<\/p>\n The right answer will tend to ebb and flow based on the prevailing interest rate environment. Today, many mortgage holders could reasonably earn more on their safe investments than they\u2019re paying to service their debt. Moreover, liquidity and spending needs figure into the decision-making: If paying off your mortgage<\/a> would require you to crack into your retirement account and trigger a big tax bill, or leave you cash-strapped and less flexible in retirement, you\u2019d want to think twice.<\/p>\n However, mortgage paydown is the ultimate \u201csleep at night\u201d allocation, especially as retirement approaches, because it helps you skinny down your fixed expenses. In turn, you\u2019re more likely to be able to match your lower fixed expenses with your fixed income, like Social Security. You might also be willing to adopt a flexible approach to your discretionary spending, which in turn can boost your lifetime retirement spending<\/a>. Rational people can debate the math around mortgage paydown, but I\u2019ve yet to meet a single person who paid off a mortgage and later regretted it.<\/p>\n Strategy 3: Build Up Liquid Reserves in a Taxable Account<\/p>\n Steering funds into a taxable account isn\u2019t as beneficial, taxwise, as earmarking assets for a tax-sheltered retirement account. To the extent that your taxable investments kick off income or capital gains, you\u2019ll pay taxes on those distributions regardless of whether you spend them or reinvest. That tax treatment points toward maxing out retirement-plan assets and the tax deferral that they afford.<\/p>\n