Big Number Of Near Retirees Earning $100,000-Plus 'Catching Up' On Savings

If Paulus Prajudha ever stops working, he will be exceedingly happy about the decision he made in his early 50s to supersize his retirement account with catch-up contributions.

"Right now, I'm just maximizing what goes into the pot," says Prajudha, 63, who is an accountant for a technology firm in Sunnyvale, California.

This year, on top of the $18,000 regular limit to a 401(k) plan, workers 50 and older can add $6,000 per year in catch-up contributions, which are aimed at helping individuals save enough for retirement.

Contributions are tax-free, but withdrawals are taxed as income in retirement.(Individual Retirement Accounts also allow catch-up contributions, but only at $1,000 per year, on top of the regular $5,500 limit.)

The additional 401(k) savings could amount to an additional $1,000 per month once a worker enters retirement, according to calculations done by Fidelity, one of the largest holders of retirement accounts.

"It's a game changer," says Meghan Murphy, director of workplace thought leadership at Fidelity.

Most employees, however, do not even come close to the regular limit, let alone put in extra.

According to new data from Fidelity, just 8 percent of its clients who are 50 and over make use of the catch-up program. Vanguard found in its last "How America Saves" report that 16 percent contribute.

While those numbers sound really low, Vanguard senior research analyst Jean Young says there is a rosier picture in certain demographics. Among those 50+ who make more than $100,000 per year, the participation rate was 42 percent.

Income Matters

The key to bigger catch-up contributions: "Give everyone higher wages," suggests Young.

If you make less than $100,000, maxing out a 401(k) and then adding catch-up contributions would mean saving more than 20 percent of earnings. But the national average of people who max out at the regular limit is just 9 percent, according to Fidelity.

Those easiest to reach may be the 10 percent of workers Fidelity found who max out the regular contribution but do not do catch-ups once they hit 50.

Paulus Prajudha got on the catch-up bandwagon after Googling retirement topics: Every year, he does a search for the maximum limits and sets his goals accordingly.

Some companies do their own outreach, messaging workers as they approach 50. You can start your catch-up contributions in the calendar year you turn 50.