A Review of Finances at Age 60

with No Comments

I’m turning 60 this week. Even though I plan on working as long as possible, this is an important check point. It’s a good time to assess progress on all fronts – physical, emotional, spiritual, and of course financial. If you are close to either side of 60, I’d like to outline the ideal scenario to help you make your own financial assessment.

Many people are beginning to think about Social Security. In truth, taking Social Security at age 62 is usually a terrible idea. You should have your Social Security analyzed and take the recommendation of a professional. Delaying Social Security until later will often result in a much higher standard of living. The danger is outliving your savings. But delaying Social Security will help insure against longevity. My own Social Security is best untouched until age 70.

Even if we don’t want to retire until age 70, 80, or never, by 60 we should be well on our way toward securing our financial independence. If we have diligently saved 15% of our income each year, we should have managed to save about 16 times our annual lifestyle spending. Even in the short time frame of the next 5 years, that balance could grow to 22.9 times our annual lifestyle spending.

If you have a $50,000 annual lifestyle, that means you might have $800,000 saved. If you have a $100,000 per year lifestyle, that means you might have saved about $1,600,000 toward your retirement. At first glance, you may not think that you are on track for retirement, but in five years those balances could grow to $1.1M and $2.3M respectively.

Ideally by now, our savings should be in after-tax accounts such as a Roth IRA or Roth 401(k) as well as in taxable brokerage accounts. If we have money in traditional pre-tax retirement accounts, we may want to start or continue a systematic Roth conversion strategy.

When assessing your retirement success, traditional pre-tax retirement accounts should be discounted by our income tax rate before their balances are used in calculations. With a 30% tax rate, a Roth IRA worth $1.6M is worth the same as a $2.29M traditional IRA in after-tax dollars.

If we haven’t been saving enough or were not invested wisely, we have one last chance to catch up. By now, catching up might need to be drastic. If we don’t have 16 times our lifestyle spending saved, now is the time to save the maximum in 401(k) accounts and IRAs. For most of us seniors, the Roth option is often the correct one for both accounts.

Saving well is half the battle. Investing well is the other half.

When it comes to money, every investor should avoid the three cardinal investment sins: fear, greed, and pride. Fear keeps you from investing, greed makes you gamble on unsafe investments, and pride makes you risk everything in order to try for the best returns.

Even well into retirement, our portfolio should be invested aggressively in equities. An average asset allocation at age 60 might put 77.7% in appreciating equities and only 22.3% in stable fixed-income investments.

I am at the point where my children are out of college and have careers of their own. I imagine many of you are as well. For this reason, there is likely no need for term life insurance any more. As we approach age 65 when we enroll in Medicare though, health insurance is likely a large and important part of our budget. With marketplace subsidies available to those who have low or no incomes, it may be worth doing a tax analysis to see how to best manage these expenses.

Many of us have grandchildren who we love to support. If you have extra money, funding your grandchildren’s 529 plans can be a sweet way to support them. However, if you must choose between either your own retirement or saving for your grandchildren’s college education, you should choose your retirement. You or your assets can help your grandchildren pay back their student loans at favorable interest rates a lot easier than you can replace your lost retirement savings so late in the journey.

At 60, looking forward to the future is bittersweet. Life planning and estate planning are both equally important during these next few decades.

By this point, we should strive to have a fully implemented estate plan. This means we should have an up-to-date Last Will and Testament, maybe a Living Trust, and a Durable Power of Attorney. We should also have beneficiary designations placed on every account that can have them with designations that support our other estate documents and our wishes.

At age 60, men have an average life expectancy of 20 more years. Women get an extra 4 years. If we are fortunate, our own numbers will be even greater. Age 80 is average, but with healthy life choices and medical advances, we may enjoy an even longer life. Those of us with the longest 20% longevity will live well into our 90s.

That being said, most of us are looking at some health issues. You should have set aside about $108,00 to $125,000 toward your ultimate long-term care insurance. If you are fortunate, you have been funding your Health Savings Account (HSA) to the maximum for years. By now, you could have as much as half that in your HSA if you have been taking advantage of HSAs since they first started.

Of course, life is too short to ignore meaning at any age, but for many people, 60 is a turning point that reminds us to stop and reevaluate. There is still time for a whole new life of significance. My father started a new career at age 62 and founded Marotta Money Management, a fee-only financial planning firm in Palo Alto, California. At age 94 he said that had he known he would live that long he would never have sold his practice. But he did sell that practice and it was from a few family accounts that did not go with the sale that he and I founded Marotta Wealth Management, a different firm in Charlottesville, Virginia.

Financial independence can open exciting possibilities that were otherwise out of the question. If you don’t need the money, you are free to do anything with your life. People of purpose usually don’t choose 20 years of recreation. We finally have the time and the wisdom to make a difference in the world!

If you’ve achieved financial freedom, you could retire at age 60 and pursue a new calling regardless of its salary prospects. If you do retire at age 60, you can use a 4.06% safe withdrawal rate to live off your net worth. To retire with a $100,000 per year lifestyle, we would need $2.46 million after-tax now.

Counting retirement as a new career is a perspective I would encourage. I teach an Osher Lifelong Learning Institute course each spring called “Financial Planning for Success and Significance in Retirement.” In the first class, we explore how to find meaning in retirement and how to define success. We use Marc Freedman’s book “Encore: Finding Work That Matters in the Second Half of Life” as an example. His book encourages everyone to find their calling in the second half of life and focus on what matters most.

I asked Freedman what he considers the most significant aspect of finding a calling in the second half of life. He answered, “When you reach the point in your life where you can celebrate the freedom to work instead of the freedom from work, that’s success. If just a fraction of people in the second half of life turn their experience, time, and talent to our nation’s most pressing challenges, imagine the progress we could make.”

Although you can have that attitude at any age, it is especially powerful for older more experience workers.

As I look both back and forward on my life from my vantage point as a newly 60-year-old, I am grateful to be working by choice and not from necessity. I am grateful that I am able to be involved in my family’s lives. And I am grateful that with my own life I have been able, in a small way, to beat back a corner of the darkness and give way to more light.

Photo by Tim Cooper on Unsplash

Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.