Saving for Retirement at Age 60: What You Need to Know

Retiring at age 60 is a significant milestone for many people, and it is important to plan ahead to ensure a financially stable future. In this guide, we'll discuss how retirement saving works, how much money you should plan to retire comfortably at age 60, and different ways to save for retirement.

What are Retirement Savings?

Retirement savings plans are investment accounts designed to help replace your income once you stop working.  These plans involve making regular contributions over time, with the goal of accumulating sufficient funds to cover expenses during your retirement years.  Retirement savings plans are often tax-advantaged.

How Much Money Do You Need To Retire At Age 60?

To retire comfortably at age 60, the first step is understanding how much money you will need to have saved by your first year of retirement. A standard rule of thumb is to plan for a 4.5% annual withdrawal from your portfolio during retirement. This method aims to ensure that retirees can receive income from their portfolio, without outliving their assets. Using this very general principle, an individual requiring a future withdrawal of $50,000 per year beginning at age 60 would need to accumulate a $1.1 million portfolio by the time they retire. 

Seeking the advice of a professional can give you a more accurate retirement projection. A financial advisor can calculate your unique retirement needs given factors such as years until retirement, expected income needs, and future expenses. It is important to factor in any expected Social Security and Medicare benefits. Once you understand how much money you need to have saved when you retire, you can plan to contribute accordingly to meet your goal.

Ways to Save For Retirement

Investing in stocks, bonds, and mutual funds are popular ways to save for retirement. Utilizing accounts such as a 401(k), IRA, or Health Savings Account (HSA) to hold these investments may allow your funds to grow tax-sheltered during your earning years. 

A 401(k) is a retirement savings plan offered by employers that allows you to contribute money directly from your paycheck. 401(k) plans typically allow you to make pre-tax contributions, although many plans now also allow you to make after-tax, or Roth contributions as well. You can choose how to invest your contributions, and your earnings grow tax-deferred until you withdraw the money in retirement.  Typically, pre-tax contributions + earnings are taxed as regular income when you take money out in retirement, whereas Roth contributions + earnings are taken from after-tax income but are tax-free when you withdraw them.  Many employers also offer a matching contribution, which can significantly boost your savings.

An individual retirement account, or “IRA,” allows you to contribute pre-tax dollars or post-tax dollars, depending on the type of IRA you choose. You typically have a wider variety of investment options in an IRA compared to a 401(k) plan, and your pre-tax contributions + earnings are taxed as regular income when you take money out in retirement, whereas your after tax  Roth contributions + earnings are tax-free when you withdraw them.

Utilizing a Health Savings Account (HSA) is another way to save for retirement. An HSA is a tax-advantaged account that allows you to contribute pre-tax dollars to pay for qualified medical expenses, either now or in retirement.  The money that you don’t plan to need in the near future can be invested and rolled over for future medical expenses.  If used in retirement for qualified medical expenses, the distributions are still tax-free.  However, you can also take distributions for any reason, penalty free and simply pay income tax, much like taking a distribution from a traditional IRA.

Summary & Retirement Calculator

Saving for retirement is one of the most important financial goals in a person's life. To retire comfortably at age 60, determine your retirement savings goal and consider various ways to save, including investing and utilizing tax-advantaged accounts. Remember, the earlier you start saving for retirement, the better off you'll be in the long run. Utilizing the resources of a financial advisor at Domain Money can help you achieve this important goal.