I'm Close to Retirement. Does It Really Pay to Keep Contributing to My IRA?

The average 60-something today has $112,500 in retirement savings, reports Northwestern Mutual. But ideally, you'll be inching closer to retirement with a larger IRA balance than that. While $112,500 is a lot of money, it may not last for 20 years or longer, which is what retirement has the potential to be.

You'll often hear that it's important to fund your IRA from a young age. That way, you'll give your investments in that account many years to grow.

What if you're nearing retirement with a decent IRA balance? If you're a few years away from ending your career, you might assume that it doesn't pay to keep making contributions to that account. After all, how much is your money going to grow in a few years?

But one thing you should realize is that while your pre-retirement contributions won't have a lot of time to grow between the tail end of your career and the start of retirement, that money can continue to grow during your retirement. So it's a good idea to fund that account down to the last minute.

A move worth making

Let's say you're 63 and are aiming to retire at 65. You might assume that funding your IRA doesn't make sense anymore.

Even if your IRA delivers a 10% return, which is consistent with the stock market's average over the past 50 years, and you put in $625 a month during the next two years (that's in line with the $7,500 maximum IRA contribution today), you'll only be looking at about $750 in gains. If you have a $500,000 IRA balance, you may not care very much about an extra $750.

But one thing to remember is that your IRA stays invested during retirement. The money you put in right before retirement doesn't stop working for you.

Granted, in retirement, you may not see an average annual 10% return in your IRA because it's a good idea to shift toward safer investments at that point, and those might deliver a smaller return. In fact, it's smart to make that change in the years leading up to retirement, too.

But remember, you might end up retiring at 65 and living until 95. During that time, you'll ideally be withdrawing your money bit by bit so it doesn't run out. So any funds you sneak into your IRA right before retirement can continue to work for you.

It pays to get the tax break

Another reason it pays to continue funding your IRA right before retirement? Those contributions can serve as a tax break. If you put in $7,500 a year during your last couple of years in the labor force, you'll shield $15,000 of your earnings from the IRS. That's something you might as well do, even if your IRA is in great shape and you don't particularly need the extra money in your account.

All told, it pays to contribute to an IRA at every opportunity you can. You can even fund an IRA during retirement, because the only requirement to do so is having earned income. So if you decide to work occasionally as a retiree, IRA contributions are still on the table. And that's an opportunity worth embracing at any age.