How to Retire by 60
It’s possible to retire by 60—but you will need commitment and a good dose of perseverance to make it happen. By retiring earlier than usual, you need to rely on your retirement savings for a longer period. That means you will want to focus on building your savings during your working years.
What else do you need to do to retire at age 60? Read on to find out financial steps to take before you retire.
Save Rigorously
Plan on amassing a sizable nest egg to cover your retirement years. As the Society of Actuaries points out, you may live longer than you anticipate. For Americans in their mid-50s today, one in three men and one in two women will live to be 90. That means you need to plan for a retirement that can last three decades or more!
Be aggressive about saving into employer-provided retirement accounts like 401(k) plans. Your employer’s match will help boost your savings. But you shouldn’t stop with a 401(k). Consider opening an IRA and a taxable account such as a brokerage account to build your retirement savings. A health savings account (HSA) can also be a key part of your retirement plan.
You also want an emergency fund to cover the unexpected, costly surprises that life likes to provide. Having an emergency fund can keep you from drawing down your investment or savings accounts too quickly. Plan on having at least six months’ worth of expenses in your emergency fund, although a year’s worth would be better.
Plan Your Budget Early
When you retire, you can expect to spend about 80% of your pre-retirement income to enjoy a comfortable lifestyle in retirement.
Your expenses may drop in your later years (although health care will likely increase). But in our experience as a fee-only retirement planning firm in the Denver area, most retirees have higher expenses early on. They are busy taking vacations, pursuing new hobbies, and just enjoying life—all of which cost money.
It can help to determine how close you are to the “retire by 60” objective by having a savings goal in mind. Start with a projected retirement budget that includes your expenses. You can then subtract your total expenses from your income sources to determine how much to withdraw from your retirement or investment accounts each month.
Your income sources can include anything from a spouse’s salary to rental income. Don’t initially count on Social Security benefits, though. You will not be eligible for them until you turn 62, and if possible, you should wait until your full retirement age at 66-67 so that you don’t permanently reduce your benefit amount. (Even better, wait until age 70 to get the maximum benefit amount.)
Ideally, your withdrawal rate will represent 3.5% of your investment savings. (The rule of thumb is 4%, but a more conservative withdrawal rate may be suitable for early retirees.) By working with a financial advisor with expertise in retirement planning, you can get more specific numbers personalized to your situation and retirement goals.
Plan for Taxes
It is impossible to know what income taxes will be in the future. However, many experts believe tax rates will increase, partly because of pandemic-related government spending and also because we are currently enjoying historically low tax rates.
You can help give yourself some tax flexibility by having a range of tax buckets to draw from in retirement. These include:
Tax-deferred accounts like 401(k)s and IRAs
Tax-free accounts like Roths
Taxable accounts like brokerage accounts
Take Care of Health Insurance
By retiring at 60, you will need to make sure your health care is covered. You will not be able to sign up for Medicare until age 65, and going without health insurance in the meantime is risky. According to Fidelity, a 65-year-old couple retiring in 2020 will need $295,000 in today’s dollars for medical retirement expenses—and that doesn’t include long-term care.
If your partner is still working, see whether you can get on their employer-provided health insurance. Then compare that cost with buying insurance through the Health Insurance Marketplace. The tax credit you receive may offset the premium expense enough to make it affordable.
Work with a Financial Advisor
Retirement at 60 doesn’t have to be just a dream. You can make it a reality by creating a retirement budget, dedicating yourself to saving, making a plan for tax flexibility, and ensuring your health insurance needs are covered.
The final tip is to work with a financial advisor as early as possible. Look for a fiduciary, fee-only financial advisor to help ensure that the advice you receive is in your best interest. Ideally, your advisor will provide long-term financial planning so you can feel confident that the day you retire, you will be financially ready for this new life chapter.
Discuss your financial situation with a fee-only financial advisor. Schedule a complimentary discovery call.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
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