Late-Stage Retirement Planning for Gen X
For Generation X members, who are now entering their 50s, retirement planning takes on a new level of urgency. Fortunately, catch-up contribution provisions and other strategies can help accelerate savings during these pivotal years.
“Generation X faces unique retirement planning challenges, but they also have powerful tools at their disposal,” says Glenn Werner Vice President Investments at David Lerner Associates. “The key is maximizing catch-up contributions while carefully managing investment risk in these critical pre-retirement years.”
Balancing Risk and Growth in the Final Decade
At this stage, investment strategies should aim to balance growth potential with risk mitigation. Many individuals benefit from maintaining meaningful equity exposure to support long-term growth, while gradually increasing allocations to bonds and more stable investments. Tax efficiency also becomes essential—maximizing contributions to both traditional and Roth accounts, where appropriate, can be a prudent part of that strategy.
The final decade before retirement represents a critical period for financial preparation. During this phase, professionals have their highest earning potential coupled with clarity about retirement proximity.
While basic retirement planning addresses accumulation fundamentals, these advanced approaches target specific challenges facing those approaching retirement.
Leveraging Health Savings Accounts for Retirement Planning
Health Savings Accounts (HSAs) offer exceptional planning opportunities beyond their intended healthcare purpose:
Triple Tax Advantage: This makes HSAs uniquely valuable among retirement vehicles. Contributions reduce current taxable income, investments grow tax-deferred, and qualified withdrawals for medical expenses remain permanently tax-free. This unmatched tax treatment exceeds the benefits of traditional or Roth retirement accounts.
Contribution Maximization: This becomes increasingly important for those age 55 and above. The IRS announced the new contribution limits for 2025, and some changes are worth noting. If you have a medical Flexible Spending Account (FSA), you can now contribute up to $3,300. For those with a Health Savings Account (HSA), the limit has gone up to $4,300 for individuals and $8,550 for families. Retirement plans also saw an increase, with the contribution limit rising to $23,500, while the catch-up contribution for those 50 and older remains steady at $7,500. It’s a good time to review your savings strategy and make the most of these adjustments!
Investment Allocation Strategies: These should become more sophisticated as balances grow. While many HSA holders maintain cash positions for near-term medical expenses, substantial portions should typically migrate to growth-oriented investments for those with adequate emergency reserves elsewhere. This investment approach recognizes the account’s potential long-term role in retirement funding.
Medicare Integration Planning: This requires careful consideration. While HSA contributions must cease once Medicare enrollment begins, accumulated balances remain available for qualified medical expenses indefinitely. Strategic spending from these accounts can effectively supplement retirement income by covering healthcare costs that would otherwise require taxable withdrawals from retirement accounts.
Estate Planning Impact: HSAs differ from traditional retirement accounts when passed to non-spouse beneficiaries. The full account value is treated as taxable income in the year of inheritance, which may affect their suitability for legacy planning. Coordinating with an estate planning professional may help mitigate unintended tax outcomes.
Addressing Longevity Risk with Qualified Longevity Annuity Contracts (QLACs)
Longevity risk—the possibility of outliving assets—represents a fundamental retirement planning challenge that specialized insurance products can address:
QLAC Framework provides tax-advantaged longevity protection In 2023, the SECURE 2.0 tax law changed the rules around QLACs. Starting in 2025, you can use up to $210,000 from a qualified retirement account to buy a QLAC. Before that, the limit was lower—$145,000 or 25% of your account balance.
Remember, this $210,000 is a lifetime cap across all your retirement accounts. So, even if you pull from multiple accounts or purchase multiple QLACs, the total amount you can spend stays capped at $210,000.
RMD Deferral: Funds invested in QLACs are excluded from Required Minimum Distribution (RMD) calculations until payouts begin, potentially lowering taxable income during early retirement years and extending portfolio longevity.
Inflation Considerations: Some QLACs offer optional inflation protection features. While these may come at an additional cost, they help preserve purchasing power if annuity payments begin well into the future and are expected to last for decades.
Spousal Continuation Provisions: This should be a prominent factor in the selection criteria. Contract features determining payment treatment upon primary annuitant death significantly impact overall value, particularly for married couples with substantial longevity differences.
Issuer Financial Strength: This demands a thorough investigation. Unlike market investments, annuity contracts depend entirely on the insurer’s ability to fulfill long-term obligations. Careful evaluation of financial ratings, regulatory oversight, and historical performance provides essential security for these decades-long commitments. Get help from a professional financial advisor if needed.
While foundational retirement strategies lay the groundwork, late-stage techniques—like optimizing HSAs and exploring QLACs—can help address the specific needs of those nearing retirement. Since individual circumstances vary, speaking with a qualified financial professional may offer helpful insights and tailored recommendations.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.