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.
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’re contributing to a company retirement plan, you can plow in $32,500 if you’re over age 50. People who are between the ages of 60 and 63 can make what are called “super catch-up” 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’ catch-up contributions must go into Roth 401(k)s (rather than traditional tax-deferred 401(k)s) starting in 2026.
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. 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.)
After age 60, however, those additional contributions simply have fewer years to compound, and the tax deferral isn’t as valuable over a shorter time horizon, either. Of course, if you don’t plan to touch the assets until their later years of retirement or you intend to leave the funds to your heirs, it’s well worth continuing to contribute; the compounding and tax-deferral benefits are magnified the longer the time horizon.
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.
4 Financial Decisions That Come With Psychological Benefits
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.
Strategy 1: Get Ahead of Big-Ticket Transactions
This strategy makes so much sense that I’d shout it from the rooftop if I could.
As retirement approaches, it’s helpful to forecast through the big-ticket outlays that your household might need to incur over the next two to five years. I’m talking about big home repairs or improvements or cars that you’ll need to replace. If you’re still working, you can plan to fund them out of cash flows rather than putting additional funds into your retirement accounts.
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’s because pulling money from your investment accounts can be psychologically difficult, especially in the early years of retirement, when you’re 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’ll be drawing all of their cash flow needs from their portfolios in those years. It’s 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.
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’ve 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.
My hunch is that it will be easier to part with the cash to get exactly what you want rather than waiting until you’ve retired.
Strategy 2: Pay Down Debt
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 “return”: debt paydown (and the relief from the interest service that accompanies the debt) or investing in something that offers a similarly safe return.
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’re paying to service their debt. Moreover, liquidity and spending needs figure into the decision-making: If paying off your mortgage 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’d want to think twice.
However, mortgage paydown is the ultimate “sleep at night” allocation, especially as retirement approaches, because it helps you skinny down your fixed expenses. In turn, you’re 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. Rational people can debate the math around mortgage paydown, but I’ve yet to meet a single person who paid off a mortgage and later regretted it.
Strategy 3: Build Up Liquid Reserves in a Taxable Account
Steering funds into a taxable account isn’t 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’ll 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.
However, the key benefit to building up liquid reserves in your taxable account is flexibility. You can put as much into your taxable account as you wish, and you can also pull as much out, without strictures. Of course, if you’re over age 59½, you can avoid the additional 10% penalty that accompanies traditional IRA withdrawals, and you can take tax- and penalty-free withdrawals from a Roth IRA at that age, too. But you’ll pay ordinary income tax on those traditional IRA withdrawals, and you may wish to preserve your Roth IRA assets for later in retirement or for your heirs because of the Roth’s prodigious tax benefits. Being able to spend from taxable accounts with minimal tax implications provides the leeway to pursue other worthwhile strategies in the early years of retirement, such as converting traditional IRA assets to Roth, for example.
The main point here is to not overdo your allocations to safer assets in your taxable account. For one thing, the tax bills on their income distributions aren’t nothing, especially because yields are still decent today. More importantly, cash has a low return relative to other assets regardless of where you hold it, so overallocating to it carries an opportunity cost. You might not even outearn the inflation rate! I like the idea of retirees holding no more than two years’ worth of liquid reserves—CDs, money market mutual funds, and so on—across all of their account types, both taxable and tax-sheltered.
Strategy 4: Splurge
This is the fluffiest item on my list, but arguably the most important.
If you’re in your 60s, it’s a good bet you know loved ones who were struck down in the prime of their lives, before they really had a chance to enjoy their retirements to the fullest. So why not lean into the big, fun experiences that you’ve been “saving” for retirement while you’re still working and healthy enough to enjoy them?
As Jamie Hopkins notes in my book How to Retire, the greater good in this case is that you’re continuing to work and earn an income, thereby forestalling portfolio withdrawals and potentially enabling other beneficial strategies like delaying Social Security. If taking a few amazing trips a year or buying a vacation home now makes continuing to work more palatable and also helps you feel more comfortable with the splurges, then those allocations are well worth considering, even if they mean you have to pull back on your savings.