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March 28th, 2024

Second Stage of Life

Eight money milestones to strive for during your 60s

Jonnelle Marte

By Jonnelle Marte

Published Dec. 23, 2015

Eight money milestones to strive for during your 60s
You are now in your 60s.

After a long career, you might be itching to start your own business or to try something new. Now that your retirement savings are (hopefully) larger than they've ever been, you might be more anxious about protecting your nest egg from any moves in the market. You may be wondering what's the best way to draw down on those savings once you stop working - or rather, if you stop working. And just because you are almost eligible to start collecting Social Security doesn't mean you should - at least not without thinking it through.

At this stage in life, it's also a good idea to check on your insurance needs, update your will and to start the move if you think you'll want to live somewhere else in retirement. If you aren't careful, you might overlook something important. Here is a list of financial milestones you should aim to accomplish before you reach the big 7-0.

1. Get real about your retirement income. If you don't already have an estimate for how much money you'll need in retirement, now is the time to do the math. Many people may be surprised to learn how little income their savings will offer to them in retirement, says Luke Delorme, a research fellow at the American Institute for Economic Research. Sit down with your adviser to estimate how much annual income you might have in retirement based on the savings you have so far.

You can also check with your retirement plan provider to see if they have online tools that can help you do the math. For example Vanguard has a calculator that helps savers estimate their chances of running out of money in retirement based on how much they have saved and how much they expect to spend each year. Fidelity also offers a tool for customers that helps them estimate how much income they might have in retirement.

Take a single man with $500,000 saved in a portfolio that is 50 percent bonds and 50 percent stocks and wants to be 95 percent sure that he won't run out of money in retirement. If he retires at 65 and has a retirement that last 30 years, he can only pull between $15,500 and $16,500 of income from his savings each year before he'll run out of cash, according to a calculator by AIER. "If you have only a few hundred thousand dollars saved, it's unrealistic to think you're going to get a big payout from that," Delorme says.

When calculating your income, don't forget to factor in other sources of pay, such as Social Security and any pensions you might be receiving. Some people will need to change their plans to make up for a shortfall by taking on part-time jobs, cutting down their living expenses or delaying retirement so that they can save more. The sooner you do the evaluation, the more time you give yourself to make those adjustments.

2. Decide when to take Social Security. After a career of working and paying Social Security taxes, you may be in a rush to collect on your retirement benefits. But collecting early at age 62 can lead to a monthly benefit that is 25 percent smaller than what you would be able to collect at your full retirement age, which would be 66 or 67 if you're in your 60s today. Waiting beyond 66 to collect could grow benefits by 8 percent each year up to age 70.

Many retirees struggle to make the call, but you may have more information now about your health, income and what your expenses are likely to be in retirement that could help you decide. A health scare, a job change or the realization that your savings may not be enough could all affect your decision.

One rule of thumb to consider when it comes to retirement income is that retirees should try to have at least half of their monthly income come from guaranteed sources, such as an annuity, a pension or Social Security, says Antwone Harris, a financial planner and vice president with Charles Schwab. Delaying Social Security may increase your monthly benefit and bring you closer to that target, Harris says.

3. Choose a place to live. The house you raised your children in may now be too large for just you and your spouse. Some boomers may want to downsize by selling their home and using the cash to move into a smaller home or condo that might be less expensive, Harris says. Those retirees who buy new homes could use any difference in price from their old home to pad their retirement savings, he adds. But some couples may be better off renting a condo instead of buying another home, advisers say. The decision will depend on how long you plan to live in your new home. Buying generally only makes sense if you'll be in the home for at least five years, to give yourself time to make up for closing costs, realtor's fees and moving expenses.

If you have larger ambitions of moving to another city, or even another continent, then you should start planning for the move now. Some countries require retirees to show that they have enough assets saved to be able to support themselves, while others only want to see that people have regular monthly income - a threshold that can often be met with Social Security benefits. Some countries in Latin America have programs meant to attract U.S. retirees by granting them residency and allowing them to move over belongings, such as a car, tax-free. You should also be aware that some places ban foreigners from buying property. It is also good to keep in mind that Medicare probably won't apply in other countries, which could require you to purchase additional health insurance.

4. Have a tax plan. You've probably spent the majority of your career stashing pre-tax dollars into a retirement savings account. You'll have to pay income taxes, which could be as high as 39.6 percent, on those savings when you take the money out of your IRA and 401(k) in retirement. But moving the money into an after-tax account slowly over the course of your 60s could help reduce your tax bill, advisers say.

For instance, some people might consider moving a portion of their savings to a Roth IRA during a year when they're in a lower tax bracket, possibly because of a job loss or pay cut, says Robert Schmansky, president of Clear Financial Advisors in Livonia, Mich. That would help them pay income taxes at a lower rate than usual and would create a pool of tax-free income that they could use to pay their bills in retirement, says Nancy Bryant, a wealth manager in the Baltimore area. (Though the Roth IRA account must be open for at least five years before investment earnings can be withdrawn tax-free.)

These moves might make the most sense for people with multiple sources of income outside of their retirement savings account. If they are worried that the required minimum distributions they'll have to take from their IRAs and 401(k) plans after age 70 and a half could push them into a higher tax bracket, reducing the size of those accounts could shrink the size of those required payments, Harris says. (Money stored in a Roth IRA or a taxable investment portfolio isn't subject to those required distributions.)

5. Resist the urge to dump your stocks. Getting closer to retirement age might make some people feel the pressure to move the majority of their savings out of the stock market and into safer holdings like cash and bonds. But savers who move too much of their money into cash in an effort to evade stock market losses could still run short on cash in retirement, advisers say.

As people live longer, the number of years they'll need to live on their savings also increases, Schmansky says. Those savers who don't keep their money invested could find that their savings won't grow enough to help cover all of their expenses in retirement.

Instead of moving the majority of your savings to more conservative investments, you should base your allocation on when you expect to retire and how much money you'll need each year to pay for your bills. For instance, money that will be needed to cover bills for the next five to seven years should be kept in cash and short-term bonds, Schmansky says. That way you won't feel pressure to sell your stocks at a loss in order to pay your bills. The money you won't need for at least 10 years can stay invested in the market, where it would have time to recover if stocks fell dramatically.

6. Bump up your health insurance. People signing up for Medicare for the first time may be surprised to learn that some of the health-care expenses they might face in retirement may not be covered. For instance, many people need to buy supplemental coverage for dental care, says Shelly-Ann Eweka, a financial planner in Denver with TIAA-CREF. And long-term care expenses, such as assisted living costs and home-health care are typically not included.

Long-term care insurance, which would help pay for some of those costs, becomes more expensive as people age and begin to face more health problems. But it may still pay to buy long-term care insurance in your 60s, Eweka says. "It's not too late," Eweka says, adding that many people may still spend less with the coverage than if they paid those health bills completely out of pocket.

7. Re-evaluate life insurance. Life insurance is typically recommended as a way to protect the people, such as your children, who may be relying on your income to help cover their daily living expenses. You may not feel such a need for the coverage after your children have launched their own careers and are living on their own.

But figuring out life insurance needs for a spouse isn't so clear cut. Some people may want a life insurance policy to make sure their spouse can afford to cover the bills after they die, while others might feel that the retirement savings they have in place will be enough.

Life insurance can also be helpful in other ways, financial advisers say. A policy could be used to pay for funeral expenses after you die, for instance. Or some wealthy boomers might buy a policy to help their children and other heirs cover estate taxes on money they'll inherit. (Estates greater than $5.4 million may be subject to taxes, according to the IRS.) "Research it and make sure that you've made the decision," Eweka says.

8. Update your will. When was the last time you took a look at your will? Twenty years ago? Take a look to make sure the family members and friends named in it are still alive and that they would be interested in the assets you want to leave them, Eweka says. Been divorced? You might want to take the money and belongings that were dedicated to your ex and allocate more of it to your children, for instance. While you're at it, revise the documents naming who would be in charge of your finances, such as paying your bills, if you became unable to handle those decisions yourself, she says. You should also update the documents explaining what your health-care wishes would be in case of an emergency, Eweka adds.

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