5 Things You Can Do in Your 60s to Better Prepare for Retirement
Once you hit 60, you’re that much closer to retirement. Whether this milestone is still a year (or a couple years) away, you can take a few specific steps when the time comes to better prepare and thus fully enjoy your golden years. Here are five such actions:
Optimize your Social Security benefits
While you can collect benefits as early as age 62, you’ll receive a more robust amount (about 7% higher) for each year you wait until reaching your full retirement age (when you first become entitled to your full Social Security benefits). If you wait even longer, this rises to approximately 8% each year between your full retirement age (FRA) and age 70.
To illustrate, let’s assume your full monthly Social Security benefit is $2,000—the amount you’d receive if you wait until your FRA. If you claim benefits at age 62, your benefit will fall by approximately 30% to $1,400. As you can see, collecting too early means you can miss out on thousands of dollars a year that can help cover retirement-related expenses such as housing and healthcare. Read more about maximizing your Social Security benefits here.
Understand how Medicare works
If you’re not familiar with Medicare complexities, you’re certainly not alone; a recent Harris Poll survey claims more than 7 out of every 10 participants over age 50 wish they had a better understanding of Medicare coverage. Now is the time to further educate yourself, as doing so can save you not only money but potential headaches along the way.
In addition to knowing what each part covers (Medicare consists of four parts), familiarize yourself with enrollment periods. If you’ve received Social Security (or Railroad Retirement Board) benefits for at least four months prior to your 65th birthday, the government will often automatically enroll you in Medicare Part A (hospital insurance) and Medicare Part B (medical insurance) at age 65—with your Medicare card/instructions typically arriving in the mail three months beforehand.
All other eligible seniors have a seven-month enrollment window to sign up for Medicare, beginning three months before their 65th birthday and ending three months thereafter (you can apply for Medicare benefits online or over the phone). Keep in mind that if you miss your initial enrollment period, you can sign up during the Medicare general enrollment period (January 1–March 31, annually) and your coverage will go into effect on July 1st.
If you don’t qualify for free Part A premiums and don’t buy in when you’re first eligible for Medicare, your monthly premium could go up 10%—forcing you to pay this late enrollment penalty for twice the number of years you fail to sign up. You’ll also want to keep in mind late enrollment penalties for Medicare Part D, which covers brand-name and generic drugs.
Read all about costly Medicare mistakes you’ll want to avoid, including how your income can adversely impact the price of your premiums.
Familiarize yourself with required minimum distributions (RMDs)
If you’re saving money in a 401(k) or traditional IRA for retirement, you’ll need to familiarize yourself with annual required minimum distributions (RMDs): the minimum amount of money you must withdraw from specific retirement accounts such as 401(k)s and traditional IRAs beginning at age 73. Starting in 2033, this stipulation will climb to age 75.
Those impacted are required to take their RMDs by December 31 of each year, but a few different options are available with respect to doing so for the first time. For example, if you turn 73 in 2024, you can either take your first RMD by December 31, 2024 or April 1, 2025. Just know that no matter which option you choose, you’ll need to take your second RMD by December 31, 2025. A failure to take your RMD by the deadline can incur as much as a 25% penalty tax on the amount not withdrawn.
Further examine tax implications, especially with your retirement accounts
While some of your expenses may disappear in retirement, taxes most definitely won’t. If you collect Social Security benefits, take distributions from your 401(k) or traditional IRA, earn a paycheck from a pension, or even generate investment income, you’ll likely pay taxes as these sources count as income for the year in which you receive them.
How much you’ll pay ultimately depends on various circumstances, with your location ranked as a top factor in this regard. If you’re like many Americans who’ll rely heavily on Social Security during retirement, avoid living in states that tax these benefits if at all possible—as every dollar counts. States that impose some form of Social Security taxes include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont.
Finalize your vision for retirement
Pondering where you and your spouse want to live during retirement is a good start. Should you both envision moving someplace new, consider renting before you buy as a practical experiment that is particularly useful if this new area is located far away from friends and family or you haven’t previously lived there. As a worst-case scenario, if you both find yourselves less than thrilled with this new locale, you’ll likely enjoy the ability to pivot more quickly and with less hassle given no need to sell a home.
After deciding where to live, spend time figuring out how exactly you plan to enjoy your newfound freedom and find new, interesting activities to fill your time while putting your mind and body to work. You’ll want to pinpoint pursuits that inspire you and give you a renewed sense of purpose.
After nailing down a shared retirement vision, you’ll need to determine if and when—from a financial perspective—you can both actually implement the same. For some perspective here, the latest U.S. Bureau of Labor Statistics consumer expenditure survey reports the average retiree household (led by someone age 65 or older) spends $57,818 per year. This should, at the very least, give you a baseline number to strive for.
In sum: how to prepare for retirement in your 60s
This list is by no means exhaustive and also assumes you’re continuing to take the actions we outlined for investors in their 50s. That said, taking these five steps after your 60th birthday can better position you to live the lifestyle you want during retirement.
FAQs
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Reverse mortgages are controversial, especially when you consider high-pressure sales tactics and false claims some private lenders make with respect to the same (e.g., claiming you can’t lose your home). Nevertheless, these are sometimes a good option for those who are house rich and cash poor and struggling to make ends meet during retirement—but only after they’ve considered all other available options.
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You can do so in several ways. One option is to consider downsizing to a smaller and more cost-effective property or moving to an area with a lower cost of living, perhaps freeing up funds to add to your retirement savings. If selling/relocating is not something you are willing to consider, however, other options include renting out a portion of your home or even considering a reverse mortgage (see above section for details).
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Many new retirees are often surprised to learn that in addition to a lot more time on their hands, they might encounter negative psychological effects they hadn’t anticipated: such as feelings of uselessness and/or a lack of purpose. Read our article on helping assess if you’re mentally ready for retirement for more information.
As for finances, your best bet is to utilize our “Am I on Track?” service. For just a small investment, you’ll gain insight into how likely you are to reach your retirement goals and, if applicable, actionable steps to get you back on course.
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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.
Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.
