2023 is bringing some changes that can help federal employees to save more towards retirement.
A man goes swimming in the ocean but gets sucked out to sea. A boat passes by him and tells him to climb aboard, but he says, “I have faith, God will save me.”
The Coast Guard comes by with a rescue helicopter and tells him to climb the ladder up, but he says, “I have faith, God will save me.”
The man is now getting tired but thankfully a dolphin swims under him and starts to carry him to shore, but the man pushes the dolphin away saying, “I have faith, God will save me.
The man dies and goes to Heaven. He asks God, “Why didn’t you save me?”
God replies, “I tried! I sent a ship, a helicopter, and a dolphin!”
Behavioral economist Richard H. Thaler and the legal scholar Cass R. Sunstein in their 2008 book Nudge: Improving Decisions about Health, Wealth, and Happiness drew on research from psychology, economics, sociology, and elsewhere to make the case for the importance of nudges. Thaler and Sunstein define nudges as “aspects of choice architecture” that predictably alter behavior without forbidding or commanding anything.
Welcome to 2023. The year is different because of inflation, the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act, new retirement contribution amounts from the IRS, and federal pay providing us with nudges to save more in 2023.
Inflation forecasts
Annual inflation fell to 6.5% in December, the sixth consecutive month of decline. If the economy slows significantly, forecasts seem to agree that the economy is likely to bring the yearly rate down to 3.2% by the end of 2023. However, this will still be higher than the Federal Reserve’s 2-2.5% target. It appears the Fed will not be cutting short-term interest rates this year.
SECURE 2.0 and future catch-up contributions
Individuals over age 50 will be able to contribute more of their salary reduction catch-up contribution to an employer plan. This contribution is currently limited to $6,500 annually.
For tax years beginning after 2024, employees who are 60-63 years old will be able to take advantage of a higher catch-up contribution of $10,000. SECURE 2.0 provisions also index the IRA catch-up contribution for individuals over age 50. The current catch-up amount is $1,000, but this amount will increase for cost-of-living adjustments in tax years beginning after 2023.
IRS changes to retirement contributions
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan will increase from $20,500 to $22,500 in 2023.
The limit on annual contributions to an IRA will increase from $6,000 to $6,500. The catch-up contribution limit for employees age 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will increase to $7,500.
Federal Pay increases
President Joe Biden signed an executive order on Dec. 23, making the federal pay raise official for many civilian employees in 2023. General Schedule employees will get an across-the-board pay raise of 4.1% in 2023, plus a 0.5% locality pay adjustment, totaling an average 4.6% pay increase. The raise took effect during the first pay period in January.
These changes collectively should persuade you to boost the amount you are saving for your retirement. Your future bills and expenses will also change.
Do you need another clue to increase your retirement savings? Here it is. Consider you are one year older and will be closer to retirement in 2023. Start saving yourself!
