How Much Money Should You Have Saved by Age 60?

Being able to retire with the money you need to live the life you want should not be an iffy proposition. Yet, according to an annual survey by the nonpartisan Employee Benefits Research Institute, less than 30% of today’s workers are very confident they will have enough money to live comfortably in retirement.¹

You deserve better. Boosting your retirement confidence can start today. Taking the time to work through how much money you might need to live comfortably in retirement can serve as motivation to tweak your saving and spending strategy if you discover you’re not yet on track to have the money you need.

Here’s how to think through how much money you will need to retire.

It can make sense to center your financial planning around what you’d need to retire at age 60 or so. Research shows that while workers anticipate wanting to keep working until age 65, the median retirement age is, in fact, 62.²

A shortcut answer to how much you’ll need to save by age 60 is to calculate roughly eight times your estimated salary at that age, according to financial pros. That target is based on assumptions about spending levels, life expectancy probabilities, Social Security benefits, and the expected return on your retirement investments.

Like all useful rules of thumb, that’s just a general guideline. Your personal situation may change the math.

How much money you need for retirement is, of course, dependent on how much income you expect to need and want. Unless you’re ready to take the time to construct a detailed spreadsheet that tracks all of your spending, another “shortcut” is to assume your spending won’t decline by more than 10% or so, at first.

Research shows that, on average, households with people between the ages of 65 and 74 spend about 10% less than households of those 55 to 64 – after age 75, spending typically declines even more.³ That said, once you pass your mid-80s, inflation-adjusted spending typically begins to rise – health and care costs are the typical triggers – though it might not surpass your preretirement spending level.⁴

Once you have a sense of how much monthly income you will need, your next step is a visit to the Social Security website to get a personalized report on the future retirement benefit you will be entitled to collect. This calculation can be a bit tricky, as your potential benefit is based on when you decide to start collecting the retirement payout.

You are eligible to start collecting your Social Security retirement benefit as early as age 62, but when you make a claim that early, your benefits will be permanently reduced. Each month you delay your start date between age 62 and 70 will entitle you to a larger benefit.

Based on your actual earnings record, the Social Security Estimator will highlight your estimated monthly benefit at three junctures:

• Age 62. This is the earliest age at which you can claim benefits. However, the amount of benefits provided when starting at this age will be permanently reduced.
• Your full retirement age (FRA). Depending on your birth year, your FRA is somewhere between 66 and 67. This is the age when you are entitled to 100% of your benefit.
• Age 70. This is the age when credits for delaying your start date top out. If your FRA is age 67 and you wait until age 70 to start receiving your benefit, it will be 124% of what you would be entitled to at age 67. But take note: When you reach 70, your monthly benefit will stop increasing, even if you continue to delay taking benefits.

If you are in good health when you retire – suggesting that you may have a long retirement – it can be worthwhile to delay your start date. Waiting until age 70 to start receiving your retirement benefit will entitle you to a monthly payout that will be about 75% higher than the reduced benefit you qualify for if you start collecting at age 62.⁵

If you will also receive a pension through an employer, you should exercise the same steps to get a solid sense of how much income you will receive from that retirement source. Also add in any other potential income sources, such as rental income.

If your combined income estimates cover your expected spending needs, congratulations, you’re all set. But like many households, you may need to rely on retirement savings in 401(k)s and Individual Retirement Accounts (IRAs) for additional income.

After decades of saving for retirement, you must switch gears and figure out how much money you can safely withdraw from your 401(k)s and IRAs each year in retirement without running the risk that your money will run out. Again, you’ll need to factor in how long you might live, the impact of inflation on your future essential spending needs, and what sort of return you can expect from your portfolio of stocks and bonds.

The company that handles your 401(k) and IRA accounts likely has a free online calculator to help you gin up an estimate. Or consider the 4% retirement spending rule of thumb. The idea is that if you start by withdrawing no more than 4%-4.5% of your investment portfolio, and you adjust that amount annually for inflation, there’s very high probability you will not run out of money over a 30-year retirement.

For example, if you have a $500,000 investment portfolio, your initial annual withdrawal would be $20,000, or about $1,667 a month, with a 4% initial withdrawal rate. But remember: You will be taxed on those withdrawals if the money comes from Traditional 401(k)s or IRAs. Roth 401(k) and IRA deposits are made with money that has already been taxed, so there is no tax on withdrawals.