Your 60th birthday is a milestone that has a way of putting things in perspective. If you’re not retired already, you’re knocking on the door. Given that, it’s not uncommon to find yourself taking stock of where you are financially.
With that in mind, how much should a 60-year-old have saved for retirement? Any experienced financial advisor will tell you that the answer isn’t black-and-white. In fact, the answer depends very much on your situation.
One common piece of advice is to have saved six to eight times your earnings by this age, but again, it’s all relative. Consider the following tips to help you produce a personalized retirement target that works for you.
What’s your plan for retirement?
How much you need to have saved for retirement when you’re 60 is entirely dependent on how much you plan to spend in retirement. Are you planning to slow down and spend time with friends and family? Or are you planning to speed up and travel the world?
How much do you already have saved for retirement?
As you approach your 60s, there’s a good chance you’ve made significant headway saving for retirement. How much do you have saved across all your retirement accounts? This includes investment accounts like 401(k)s, IRAs and regular brokerage accounts, as well as cash savings. A common rule is that you can withdraw 4 percent of your savings the first year of retirement and then continue to withdraw the same amount, adjusted for inflation each year. This can be a starting point to get an idea of how much income you may be able to generate, but it’s just a guideline and with lower inflation, the number today may be lower.
You now have your total, but keep in mind that this does not include your Social Security benefit, which you can estimate here. Other guaranteed sources of income may also come into play. An income annuity could add a monthly payout that lasts for life. Similarly, whole life insurance can provide an accumulated cash value that isn’t affected by the markets and is available for you to access at any time. This is money you could tap to help protect your nest egg during market downturns.
You’ll also want to take your current expenses into account. How much do you currently spend in a typical month? Do you anticipate these expenses changing in retirement? Maybe your mortgage is paid off. Others may relocate to a city with a higher or lower cost of living. Whatever the answers are, your expenses in retirement will play a key role in planning for the future.
Clarify your retirement timeline
If the first step is knowing where you are, the next is knowing where you’re going. Have you saved enough to fund the lifestyle you want in retirement? The answer has a lot to do with your retirement timeline.
You may find that the numbers work if you stay in the workforce until a certain age. Alternatively, you might decide to adjust your retirement expectations in order to retire earlier. Another option could be adding part-time work (perhaps a role that relates to a hobby) to help bridge you to the time you start to collect Social Security.
It all depends on your goals and financial situation. This is precisely why working with a skilled financial advisor is so important. He or she can map out different retirement scenarios to help you visualize what they’d look like in real life.
Understand risks to your retirement income
Even if your retirement savings is on track, it’s important to be aware of things that could potentially threaten your financial stability in retirement. These include:
- Longevity: How will your nest egg fare if you end up living longer than expected?
- Market volatility: Is the bulk of your money tied up in investment accounts? If so, those balances will fluctuate with market swings and if generating income requires you to sell stock that has lost value, you could deplete your savings faster than expected.
- Taxes: Speaking of investment accounts, you’ll be taxed on any money you take out of tax-deferred accounts. This could translate to a significant tax liability in retirement. A good retirement plan will help you minimize the taxes you owe in retirement.
- Health care costs: Have you accounted for health care costs like deductibles, premiums, medication and other out-of-pocket expenses? If you retire younger than 65, you’ll likely have higher health care costs since you won’t yet be eligible for Medicare.
- Inflation: It’s important to remember that inflation gradually chips away at your purchasing power. Assuming the right amount of risk in your investment portfolio during retirement can help shield you from inflation.
- Long-term care: If you or your partner experience a prolonged illness in retirement, it could derail your financial plan or create a financial burden for your loved ones.
- Legacy: A well-planned retirement strategy includes intentional legacy planning. Without it, you may end up depleting assets that could have been set aside for your loved ones. Conversely, some people are hesitant to spend in retirement, fearing that there won’t be enough for the legacy they plan to leave.
So how much should a 60-year-old have saved for retirement? Let your unique goals and retirement timeline be your guide. A financial advisor can help you get on the right path and navigate challenges as they arise.
The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.
Want more? Get financial tips, tools, and more with our monthly newsletter.