Clients Retiring in 2024 Need to Know About These Changes

Some retiring clients may be in situations where the creditor protection features of a 401(k) umbrella can be beneficial. These might be clients in professions that could be subject to lawsuits such as doctors, attorneys and financial advisors. Even if they are retired, these clients still may face lawsuits from former patients and clients.

Additionally, if retiring clients’ 401(k)s offer outstanding investments, leaving the money in a Roth account in plan can allow them to reap the benefits of these investments after retirement. Any plan rules regarding former employees leaving funds in the plan should be considered as well.

Medicare Premiums

After declining for 2023, monthly premiums for Medicare Part B will increase from $164.90 to $174.70 in 2024. This represents a 6% increase. For clients who will be subject to an income-related monthly adjustment amount, known as an IRMAA surcharge, the increase in the increased Part B premiums is also 6% from 2023 to 2024 levels. The 2024 IRMAA surcharges are based on clients’ 2022 income level.

Clients who had a health savings account when working can use money from the HSA to cover Medicare premiums for Part B, Part D drug plans, Medicare Advantage premiums plus deductibles, coinsurance and copays. HSA funds cannot be used to pay premiums for Medigap supplement policies.

The ability to withdraw HSA funds tax-free is a great benefit for clients with such an account, as is the ability to invest the money to help offset future premium increases.

Interest Rates

The Federal Reserve recently said that while it is maintaining the federal funds rate in the 5.25% to 5.50% range, the announcement also indicated that we can potentially expect three rate cuts of 75 basis points each.

The Fed announcement could signal the end of the relatively high interest rates on savings accounts, money market funds, Treasurys, certificates of deposit and other low-risk, interest-bearing investments. These high interest rates have been a boon for many retirees, but lower interest rates can be favorable for clients approaching retirement as well. 

Positions in individual bonds or bond mutual funds and exchange-traded funds could receive a bump as interest rates decline. Lower interest rates could also help the stock portion of clients’ portfolios, at least in the short term.

One advantage of higher interest rates for clients heading into retirement is the ability to lock in relatively high rates on fixed annuities. If this is an appropriate product for your retiring client, it might pay to check on current offerings. 

Higher Contribution Limits

As happens in most years, contribution limits for 401(k)s, 403(b)s and other employer-sponsored retirement plans are increasing in 2024. 

If clients can afford to, before retiring in 2024, they should try to max out contributions to their employer’s plan. This adds to their retirement savings totals and can provide a tax benefit to the extent that the contributions are made to a traditional retirement account rather than a Roth account.

For clients who will be working for themselves in retirement, be sure to encourage them to establish a self-employed retirement plan such as a solo 401(k) or a SEP-IRA.