What do Kevin Bacon, Michelle Pfeiffer and Alec Baldwin have in common? They all turn 60 this year! If you’re in your 60s, there’s a lot to do to plan for your retirement. We talk about some financial priorities you can make prior to retirement that can help you meet your goals.
63 is the average retirement age in the United States. However, it’s important to remember that’s just an average. About 20% of workers stay on the job until age 70 or beyond. That includes almost 10% of people who are still working at age 80! Whether you retire in your 60s or not, there are some important financial steps everyone should take in this decade of life.
Save, Save, Save!
Many 60-somethings are behind on their retirement savings, and this is the decade to build it up! The average savings goal for someone 60-plus is $300,000. However, the reality is they only have an average of $50,000 saved. Take advantage of catch-up contributions to retirement savings accounts, which kick in at age 50. Younger workers are capped at saving $18,500 per year in their 401(k) and $5,500 in their IRAs for 2018. However, older workers can save an additional $6,000 in a 401(k) and $1,000 in an IRA. As retirement inches closer, maxing out those savings is the way to go. If you haven’t already, this is also a good time to meet with your financial advisor, who can help you create a plan for retirement. Your advisor can help you determine how much you will need to have saved for retirement, and when you are ready to take that leap.
Go Job Hunting
It may seem counterintuitive to look for work when you’re on the brink of retirement, but work is a pretty common part of retirement these days. A study found many retirees experience a “sugar rush” right after they retire, where they are happy and feeling good. However, if boredom sinks in, their quality of life can drop significantly. Many retirees find part-time jobs to pass the time and to keep them feeling fulfilled. A common scenario is to stay in the same line of work, possibly even work for the same company, but as a consultant. That keeps you in your field of interest, but reduces the hours and stress of a full-time job. About three in five retirees shift gears completely, finding new lines of work. If you’re looking for a fresh start, consider jobs like driving for Uber or working as a substitute teacher. The additional benefit to having a part-time job is the income it brings in, which can help your savings last longer throughout retirement.
Set a Spending Strategy
Overspending in the early years of retirement can leave you in a difficult situation later on in life. After all, you should plan to live into your late 80s or even 90s. Many people believe they can spend 7% or more of their savings each year in retirement. However most retirees’ spending rate should be closer to 4% or even less. Setting a spending strategy will help you know how much you can safely spend in retirement to make sure your money lasts. If you do retire in your 60s, check your numbers every year to make sure you don’t need to make changes to your spending strategy.
Make a Plan for Social Security
You’ll hit Full Retirement Age (or FRA) in your 60s, depending on the year you were born. Many people think of age 65 as full retirement age, which it was for many years. However, Full Retirement Age has been pushed back, and you may not hit it until age 66 or 67. You can find out your FRA on the IRS’s website. You can file for Social Security as early as age 62, but your benefit will be permanently reduced by as much as 25%. There is a big bonus for delaying your claim beyond your Full Retirement Age: your benefit will grow by as much as 8% each year until age 70. There is no benefit to waiting past age 70 to file. Be sure to talk with a financial professional who can help you determine which strategies will help you maximize your benefits.
Consider Your Health
Healthcare is one of the biggest expenses in retirement. The average man who is 65 years old today will spend nearly $190,000 on healthcare in retirement, while the average woman will spend nearly $215,000. Those numbers don’t include the cost of long-term care. You become eligible for Medicare at age 65, which offers benefits for seniors to help stay on top of their health, like a free annual wellness visit and other health screenings. Taking advantage of these services may help you catch concerns early and avoid a big bill later on. You may also want to consider long-term care insurance if you don’t have it already. Up to 70% of seniors will need long-term care, which is not cheap. A nursing home can cost $82,000 per year, and an assisted living home can add up to more than $43,000 per year. Buying long-term care in your 60s (or even 50s) can help bring down some of those costs.
Pay Off That Mortgage
I recommend my clients pay off all their debt, including their mortgages, before they retire. However, that may not be possible in all cases. Your mortgage should be one of the last debts you pay off because it’s considered “good debt.” You’re paying for something that’s increasing in value. Mortgages also typically have low interest rates. If you’ve paid off your bad debt, step up your efforts to pay off your mortgage. Try making biweekly payments. Instead of making a payment once a month, make half of your payment every-other week. That adds up to 26 half-payments, or 13 full payments, per year. By making that extra payment each year, you can take eight years off a 30-year mortgage, depending on the interest rate. Before you make extra payments, make sure your bank accepts additional payments and doesn’t charge prepayment fees. Be sure to tell the bank that you want your extra payment put toward the loan’s principal balance.
Get Ready for RMDs
RMDs, or Required Minimum Distributions, don’t kick in in your 60s, but this is an important decade to be aware of them and build a plan. RMDs start at age 70 1/2. At that time you are required to start taking distributions from your 401(k) or IRA. Based on the IRS’s life expectancy tables, you can calculate how much you’ll need to withdraw at age 70 1/2 and each year beyond that. Planning for RMDs is important because if you miss one, you could get hit with a steep penalty – 50% of the money you were supposed to withdraw. RMDs do not apply to Roth IRAs or other Roth accounts.
The Retirement Ready radio show is featured every Saturday on WTMJ 620 AM at 1:00 pm. We will bring you information on: Social Security options, retirement trends, options to retire with life changes and achieving a secure financial future. Listen live here: WTMJ 620AM LIVE
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Drake & Associates does not offer tax or legal advice.
Advice and opinions expressed during Retirement Ready are solely that of the hosts or guests of Drake & Associates, LLC and not WTMJ Radio or The E.W. Scripps Company.