# Am I saving enough to retire at 60?

By James Ustby, CFP®, APMA®. Canonical URL: https://jamesustby.com/pre-retire-am-i-saving-enough-to-retire-at-60

> Find the number first: annual retirement spending minus Social Security and pension, times 25. Then compare what you have today, grown at a reasonable rate to age 60, against that number. The gap divided by the years left is the extra you need to save each year. Most people who do this at 50 find the gap is closable. Most people who do it at 58 find it is not, which is why the exercise is worth doing now.

## Retiring at 60 has two costs people forget

Five years of healthcare before Medicare, which can run $15,000 to $30,000 a year for a couple depending on income and subsidies. And years of Social Security you are not yet collecting, which means every dollar of spending from 60 to 67 comes from savings. The number for a 60 retirement is meaningfully higher than for a 67 retirement, and the healthcare line is the reason.

## Run the projection honestly

Take today's balance. Grow it at a rate you can defend, which for a balanced portfolio is in the mid single digits after inflation, not the number the last three years produced. Add your current annual savings each year. Stop at 60. That is your projected balance. Compare it to the target. The difference is the problem, stated in dollars.

## The three levers, in order of power

Save more, which is the slowest lever but the only one fully in your control. Retire a little later, which is the most powerful lever because every year both adds savings and removes a year of withdrawals. Spend less in retirement, which is the lever people reach for first and regret most. A good plan uses a little of each rather than all of one.

## Where the extra savings should go

Fill the 401(k) to the match, then max the HSA if you have one, then the Roth IRA if you qualify, then back to the 401(k) up to the limit, then a taxable account. The catch-up contributions available after 50 exist precisely for this decade. Use them.

## A worked example

| Item | Amount |
|---|---|
| Couple, both 50, want to retire at 60 on $90,000 a year |  |
| Social Security at 67, so from 60 to 67 the full $90,000 comes from savings |  |
| Target balance at 60 (gap years plus 25 times the later gap) | about $1,600,000 |
| Balance today | $650,000 |
| Projected at 60 at 5 percent real with current $20,000 a year saved | about $1,310,000 |
| Shortfall | about $290,000 |
| Extra savings needed per year for ten years, roughly | $23,000, or retire at 62 instead |

At 50 this is a decision between a bigger savings number and two more working years. At 58 it would be neither; it would be a smaller retirement. The decade is the asset.

## Questions people ask next

### What return should I assume?

Something you can defend in a bad decade. Many planners use 4 to 6 percent after inflation for a balanced portfolio over long periods. Using a higher number does not make the money appear; it only hides the gap until it is too late to close.

### Should I pay off the mortgage first?

Retiring without a mortgage lowers the spending number and therefore the target. Whether to prepay depends on the rate and on whether you are already capturing every tax-advantaged savings slot. Usually the savings slots come first.

### What about catch-up contributions?

After age 50, the IRS allows additional contributions to 401(k) plans and IRAs above the standard limits. The current amounts are on the IRS page below and they change most years.

## Sources

- [IRS: Retirement topics, contribution limits and catch-up contributions](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions)
- [HealthCare.gov: Health coverage if you retire before 65](https://www.healthcare.gov/retirees/)

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Author: James Ustby, CFP®, APMA®, Wealth Advisor, LPL Financial, Durham and Chapel Hill, North Carolina. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. Examples are hypothetical and for illustration only. Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA / SIPC. Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP® and CERTIFIED FINANCIAL PLANNER® in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.