Near-Retirees Max Out $23,500 401(k) in Final 5-Year Push

Workers five years from retirement can add up to $7,500 a year to a 401(k) through catch-up contributions, a window that rewards shifting portfolios from growth stocks toward income-producing assets.

The final five years are the most important for protecting accumulated savings, according to Investopedia's retirement planning guidance, which urges workers to calculate net worth and project retirement expenses before adjusting contributions.

Under 2025 IRS limits, workers can contribute $23,500 to a 401(k), 403(b), 457(b) or TSP, plus a $7,500 catch-up for those 50 and older. Traditional and Roth IRAs carry a $7,000 limit with a $1,000 catch-up. The guidance recommends shifting toward dividend-paying stocks from large stable companies, high-yield savings accounts, certificates of deposit, and bonds and U.S. Treasury securities fully backed by the government.

With retirement income needs spanning housing, health care, taxes and long-term care, the shift from growth to income matters because a market downturn in the final five years can permanently reduce the balance a retiree draws on for 20-plus years. Robo-advisors and brokerage firms offer automated portfolios that rebalance toward conservative holdings as the target date approaches.

Calculate Net Worth Before Adjusting Contributions

Before deciding how much to save, workers should add up all assets and subtract all liabilities to establish net worth, including existing retirement balances. That baseline determines how much more is needed to cover projected expenses, which typically include housing, food, health care, taxes, travel, emergency savings, debt and long-term care. A robo-advisor can factor these expenses into a retirement strategy and build a portfolio to meet those needs.

Catch-Up Contributions Lift Annual Savings

For workers in their 50s and 60s, the IRS catch-up allowance adds $1,000 to an IRA or $7,500 to a 401(k) annually on top of the base limits. After maxing out tax-advantaged accounts, the guidance suggests parking additional savings in high-yield savings accounts, which offer significantly higher interest rates than traditional savings accounts. The 2025 limits reflect the IRS's annual inflation adjustment, so workers should verify current figures against the latest official IRS announcement before planning contributions.

The strategy reflects a broader shift in retirement planning toward capital preservation in the final years before retirement. Workers who delay the transition risk exposing their nest egg to a downturn at the worst possible moment, while those who move too early sacrifice growth. The balance, guided by a financial advisor or automated robo-advisor, determines whether retirement income lasts through a retirement that can span two decades or more.

This article is for informational purposes only and does not constitute investment advice.