While you’ve been (hopefully) saving for retirement for decades, your 60s are when retirement planning comes to a head. Although some people follow the “traditional” path of retiring in their early or mid-60s, many others will follow a variety of different paths, including phased retirement.
Increased life expectancy has made careful planning in one's 60s even more important. It’s not uncommon today for people to live into their 90s, requiring retirement savings to last 30 or more years.
Regardless of the retirement path you choose, your 60s are the gateway decade into retirement. Here are nine planning and investing steps to take in your 60s towards your plan to ensure that you don’t outlive your retirement savings.
1. Review all potential sources of retirement income
A key first step is to review all sources of retirement income you expect to receive in order to quantify how much you’re likely to be working with, and what kinds of restrictions or requirements those income sources might come with.
These can vary from person to person, but some typical retirement income sources include:
- Social Security
- A pension
- Tax-advantaged retirement accounts such as a 401(k), 403(b), traditional IRA, Roth IRA and others
- Taxable investments
- Stock options or restricted stock units
- Cash, savings or money market accounts, CDs and similar cash holdings
- Annuities
- Cash value in a life insurance policy
- An interest in a business, including potential sales proceeds
- Real estate
- A potential inheritance
- Working in retirement
Knowing what income you’ll likely have, when, and from where will help you think through how to structure your retirement financially.
Want to dive deeper into your retirement paycheck strategy? Read our special report: 6 Sources of Retirement Income.
2. Review your retirement spending budget
What will it cost you to live during your retirement? How will that change over time? Looking at your anticipated expenses will help you think through what you might need to withdraw, when, and from where.
Anticipated expenses can include things like:
- Housing costs, including utilities, property taxes, and insurance premiums
- Anticipated normal monthly expenses, such as groceries, gas, etc.
- The cost of healthcare and long-term care, including prescriptions
- Debt payments
- Taxes
- Travel and other activities in retirement
You’ll probably want to differentiate between inflexible costs, like debt payments, and flexible costs, like family vacations.
3. Plan for inflation
While inflation is always a concern, the past few years have illustrated just how much it can affect everyday costs. Inflation reduces your real purchasing power over time, even during periods of relatively low inflation. Your investing strategy should factor in the need to earn enough (through income or gains) to stay ahead of inflation to maintain or increase your real purchasing power.
4. Decide when to claim Social Security
When to claim Social Security benefits is an important decision at several levels.
Full retirement age (FRA) ranges from age 66 for those born in 1954 to age 67 for those born in 1960 or later.1
Though you can claim Social Security benefits as early as age 62, your benefits will be permanently reduced if you claim benefits before your FRA. If you’re working or self-employed and you earn above a certain threshold, your benefits could be additionally reduced or eliminated until you reach your FRA. A delay in claiming your benefits past your FRA can also permanently increase your benefits.
Married couples have additional concerns to juggle. In some cases, it can make sense for the higher earning spouse to wait until age 70 to claim to help ensure a larger survivor’s benefit for the other spouse, if the higher earning spouse dies first. If there is a significant age gap between the spouses, this can create a range of additional claiming considerations.
For those working into their 60s, each year of earned income can help increase their lifetime earnings for Social Security, as long as these earnings rank in the top 35 highest earnings years. This can add to your Social Security benefit amount.
5. Plan for health care expenses
The cost of healthcare is typically one of the biggest expenses for retirees. Fidelity estimated in 2023 that a single person aged 65 may need as much as $157,000 after tax to cover out-of-pocket healthcare costs in retirement, and an average retired couple aged 65 would need about $315,000.2
While these amounts are estimates and your actual expenses will vary based on your health and how long you live, and where you live, you can see that this is a significant expense you’ll need to plan for. If you haven’t already, take a look at the cost of long-term care in your state.
If you have accumulated funds in a health savings account (HSA) this is a great vehicle to cover a wide range of healthcare costs in retirement, including Medicare premiums, out-of-pocket costs and a wide range of other healthcare and related expenses. Withdrawals from an HSA for qualified expenses are tax-free.
If you’re still working, be sure to keep contributing to your HSA if you have an eligible high deductible health insurance plan. One caution: you may not contribute to an HSA once you’re enrolled in Medicare Part A. It's best if you can stop contributing to your HSA at least six months prior to enrolling in Medicare.
6. Keep up with your retirement savings
If you’re still working into your 60s, be sure to contribute as much as you can to an employer sponsored retirement account or to a self-employed retirement account. People are often in their peak earnings years in their 60s, so try to max out your contributions.
Not only can these contributions provide a current-year tax benefit, but these contributions also help increase your overall retirement nest egg. While they don’t have the same time to compound as the money you saved in your 30s, contributions made in your 60s are still an important part of your retirement savings strategy.
7. Asset allocation and bucketing
While you still want and likely need portfolio growth in your 60s and beyond, you also want to guard against the need to withdraw funds for retirement in the face of a significant market decline. Known as sequence of returns risk, this can derail your retirement by either reducing your retirement income throughout retirement, or force you to return to work in order to make ends meet in retirement.
A bucketing approach can help you position funds to be used over short, intermediate and longer-term periods, with investments geared towards using these funds over various time periods. For example, the short-term bucket might contain liquid investments, such as money market funds or savings accounts, that offer a decent interest rate. Be sure to build your short-term bucket before you actually need the money just in case the stock market takes a sharp downturn when you're about to retire.
8. Distributions
Deciding which accounts to tap and when is a key part of retirement income planning. Although you’ll need to revisit it every year in retirement, sketching out a plan before you retire can help you maximize your options.
During the early years of retirement or semi-retirement in your 60s, for example, it might make sense to tap money in traditional retirement accounts if you’re in a lower tax bracket. Once you hit age 73, you’ll become subject to required minimum distributions (RMDs).
Though not a distribution per se, traditional IRA conversions to a Roth might also make sense in low tax years. This can reduce future RMDs and be useful in estate planning as well.
9. Tax planning
Your 60s is a key time for tax planning. While some people may think tax concerns end in retirement, nothing could be further from the truth. The tax planning you do around distribution strategies can help preserve your nest egg through lower taxes. This is an important component in allowing your retirement funds to continue to grow over time.
Pulling it all together
These nine considerations may seem like a lot — and they are. The financial planning steps you take or don’t take in your 60s can have a profound impact on whether or not you are able to enjoy a financially secure retirement.
Your 60s are a decade of change as you near or enter retirement. Be sure to take the time to analyze your needs and adjust your portfolio to reflect these changes. Doing so can help make sure you enjoy a financially secure retirement. Don’t hesitate to consult with a financial advisor who works with retirees and near retirees for help.
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