The availability of “catch-up” investing in savings plans such as the TSP is a potentially valuable boost to retirement security but it’s mainly higher-income persons who can afford to take advantage of it, says a report from the Center for Retirement Research.
Catch-up investing allows investments above the IRS-set annual maximum, called the elective deferral limit, in the year the investor turns 50 and afterward. The TSP’s policy mirrors that of 401(k)-type plans.
As the report notes, “The idea behind the provision is that individuals, who may postpone saving for retirement when they are younger, need to step up their saving as their retirement age starts to loom larger.”
It adds, though, that even investing up to the annual maximum “is not an easy task” for most people—in a study of 401(k) plans, for example, only 9 percent made investments of even 90 percent of the annual limits. Not surprisingly, it said, those who can afford to make the maximum investments tend to have the highest salaries, and also the highest net worth.
Increasing the allowable annual catch-up amount, it added, “would likely affect only a very small group of people; it does not offer a broad-based solution for low saving rates in the United States.”