For many of us, our 60s are dominated by the transition to retirement.
It’s one of life’s major transitions, right up there with moving out of our parents’ house or getting married. And it takes planning to get right.
Consider the following money moves as you navigate your 60s, and map your personal finances for the next several decades.
Credit and Debt
Debt is a young person’s game. By your 60s, aim to avoid taking on any new debts at all, with the possible exception of a home mortgage.
1. Pay Off Any Unsecured Debts
If you have any remaining unsecured debts, such as credit card balances carried from one month to the next, personal loans, or (heaven forbid) student loan debt, pay it off now. This must be your highest priority.
Follow the debt snowball strategy to eliminate your debts one at a time. And if you have a problem with credit card usage, cut up the card and don’t request a new one.
You can’t afford high-interest debt at this stage in your life. Do whatever it takes, including the envelope system if needed, to get control over your spending and conquer your debts permanently.
2. Accelerate Your Secured Debts’ Payoff
While secured debts such as auto loans and mortgage loans come with lower interest rates, you’ve reached a phase in your life where risk management becomes a priority.
By paying off a loan early, you effectively earn a guaranteed return on the extra payments equal to the interest rate of the loan. Putting extra money toward a 5% interest loan yields you a 5% return by avoiding that interest.
That guaranteed return comes with no risk. And by paying off your auto or home loan early, you lower your living expenses, which means you don’t need as much of a nest egg for retirement.
Consider a biweekly payment plan, where you make automated half-month payments every two weeks. That means making 26 half-month payments each year, or 13 months’ payments in a year. If you want, you can always bump up the biweekly payments to go faster.
Like younger adults, you need safety nets in your 60s. But not necessarily the same safety nets, and not in the same amounts.
3. Expand Your Emergency Fund
Most adults should have between three and 12 months’ living expenses set aside in their emergency fund. In your 60s, you may want more.
Emergencies could include traditional risks like a health crisis or job loss, both of which unfortunately become more likely as you get older. But it also helps to have a deeper cash cushion as you enter retirement to protect against a market crash early in your retirement, a danger known as sequence of returns risk.
A deep cash reserve in your retirement helps you avoid being forced to sell off stocks during a market correction, which in turn reduces the odds that you empty your portfolio before you die.
Consider funneling a little extra money toward your emergency fund each month. If nothing else, it might prevent you from panicking in a correction and making emotional investment decisions.
4. Plan Your Switch to Medicare
At age 65, most Americans become eligible for free hospital insurance through Medicare Part A.
Medicare Part B covers doctors’ visits and outpatient care. It costs money, but not an arm and a leg — the standard premium for 2021 costs $148.50 per month ($1,782 per year). Uncle Sam deducts the cost from your Social Security benefits if you’ve started collecting them.
Medicare Part D covers prescription drugs and costs even less. The Centers for Medicare & Medicaid Services (CMS) estimates the average premium for basic Part D coverage at $30.50 per month ($366 annually) in 2021.
However, watch out for late enrollment penalties for all parts of Medicare coverage if you sign up after the initial enrollment period.
Read up on Medicare before turning 65 so you understand all the bureaucratic quirks and rules. Get it wrong, and you can pay higher health care premiums for life.
5. Stop Paying for Life Insurance
When your household has one breadwinner and many dependents, you need life insurance. If you’re an empty nester, you probably don’t, unless your spouse doesn’t work and you’re woefully underprepared for retirement.
Take another look at your life insurance policy versus your needs. Feel free to get a second opinion — just not from an insurance salesperson. Talk to a financial planner, or even your accountant or your financially savvy brother-in-law.
Life insurance makes sense if your dependents would be in dire financial shape in the event of your death. But odds are that as you approach retirement, you no longer need to shell out money for life insurance.
6. Reassess Your Disability Insurance
Similarly, disability insurance becomes less pressing as you near retirement. After all, it protects against you losing your ability to work — but no longer working for a living is the whole point of retiring.
Again, speak with a financial professional if you don’t know whether to keep paying for a policy. But if you’re near or at financial independence, you can probably skip it and put the money into retirement investments instead.
Plan Your Retirement Now
To map a route, you first need to know where you want to go.
Plan out the life you want to have in retirement now, so you can save, invest, and otherwise plan accordingly.
7. Know Your Target Nest Egg and Retirement Budget
Do you know how much money you need to retire?
If not, you need to calculate it, and now. Fortunately the math is easy enough.
Plan out your desired annual budget in retirement. Include everything from housing to transportation, food to entertainment, holiday gifts to travel. Cross check your planned budget against the major personal and household budget categories for reference, and consider drawing up a new budget from scratch using Google Sheets.
Then multiply your annual budget by 25. That’s how much you probably need as a nest egg.
Or not, depending on how long you expect to live after retirement, and your risk tolerance. For more information, read up on safe withdrawal rates or just speak with your financial advisor.
You might find that you have already reached financial independence and are able to support your target annual budget with investment income alone. Or you may have a long way to go.
If the latter, you have a few options at your disposal. You can reduce your target spending in retirement, boost your savings rate now, plan to work longer, or try to earn more money in your remaining working years. You might need to combine several of those strategies.
But above all, you need to know your target if you have any hope of hitting it.
8. Set a Target Retirement Age
Once you set a target nest egg, set a target age to reach it.
Remember that surging financial markets might get you there faster, or a bear market might slow your roll. Stay flexible, save as much money as you possibly can, and be prepared to work longer if the stock market crashes just before you planned to retire.
Also, beware that you can’t count on your employer leaving the choice entirely up to you. Older workers get pushed out of their jobs all the time — more on that later.
9. Plan Your Retirement Housing
Where do you plan to live once you retire? In the same large suburban house where you raised 2.1 kids and a dog named Rex? In a smaller home in the same city? In another state, or even overseas?
First of all, downsize sooner rather than later. Large homes with large lawns come with large mortgage payments and utility bills, and equally large upkeep and maintenance costs. Put that behind you and save more money toward retirement. It might just help you retire a year or two early.
While you’re brainstorming ideas, consider house hacking to eliminate your housing payment entirely. Without a housing payment, you could potentially retire now!
For that matter, consider moving overseas. There are many countries in this wide and wonderful world of ours where you can live comfortably on just $2,000 per month.
The sooner you slash your housing costs — including utilities, repairs, and maintenance — the less you have to save for retirement and the sooner you can say adios to your job.
10. Consider Post-Retirement Gigs
Just because you don’t want to work your high-stress job anymore doesn’t mean you should stop working cold turkey.
Start brainstorming ideas for other ways to earn money. That could mean simply dropping down to three days per week in your current job, or taking a new job that’s fun, meaningful, or both. You might find a job that lets you work from anywhere, or a job that lets you travel for free. Many of these jobs provide health insurance and other benefits to boot.
Begin with these post-retirement job ideas, but don’t stop there. Find your own unique “second act” that provides some income, structure, social interaction, and meaning, while letting you ease off the gas and enjoy your life more.
By working a second act, it changes the math on how much of a nest egg you might need, how long you continue working your current job, and where you live. You may even decide you can afford to quit your stressful day job now, and enter a new phase of your life immediately.
11. Plan for Long-Term Care
We all harbor this fantasy that we’ll die peacefully in our sleep, while completely healthy.
Unfortunately, the statistics contradict that fantasy. Over half (52%) of adults who live to 65 will end up needing long-term care one day, per AARP.
One option is long-term care insurance, but it’s expensive and insurance companies can always change the rules on you. Explore other options for long-term care, such as aging in place with a caregiver, moving in with your children, or even moving overseas for lower cost of living and care.
Or just set aside some extra money in case you need care one day.
Whatever your plan, the important thing is that you have a plan in the first place, rather than ignoring the risk and hoping it never strikes you.
12. Plan for Your Parents’ Care
According to a study by Care.com, roughly one-third of Americans end up supporting their parents financially in their later years.
If you’re lucky enough to still have your parents with you, talk to them about their finances and plans for care. Don’t let them dissemble or tell you it’s not your business. Should they run out of money or need long-term care and can’t afford it, it quickly becomes your problem.
Force a forthright conversation, and take their potential needs into account as you plan your own retirement. While you shouldn’t put their needs before your own, or continue living in a large house on the off chance that they want to move in with you, you don’t want to be taken by surprise if their finances fall apart.
Understand the risk, if one exists, and plan accordingly.
Paving the Way to a Smooth Retirement
Whether you’ve already retired or continue working, follow these steps to prepare your finances for your remaining decades of life.
13. Plan Your Remaining Work
First, plan out your ideal scenario for your remaining work life. That could mean continuing at your current job for a few more years before hanging up your hat, or transitioning to a second act as outlined above.
If the former, talk to your employer about your plans. They may have a different plan for you — almost two-thirds of workers over age 50 have been forced to leave a job before they intended, whether due to being pushed out, fired, or resigning due to family health reasons, according to a study by ProPublica and the Urban Institute. By talking to your employer about your plans, you can get a sense for how keen they are to keep you. Watch out for early indicators such as hints like “Are you sure you don’t want to retire sooner to get the most out of your retirement?”
If you plan on a second act, start looking into the specifics of pay, location, and qualifications. Start preparing for the transition as early as possible to make it a smooth one.
14. Budget for Your Retirement Timeline
You know when you plan to retire, and you know how much you need. Now you need to execute your plans through budgeting.
That might mean cutting back on discretionary expenses if you’re behind on your retirement savings. Or it might mean getting creative through means like house hacking or moving somewhere with a lower cost of living.
When in doubt, speak with a financial planner about how much you need to save each month. But most of the challenge lies in your behavior, not the math.
15. Protect Your Brain and Physical Health
A surefire way to lose your job and earning potential is to experience a health crisis.
Like budgeting, healthier living comes down to behavior, not knowledge. You already know what you should be doing — eat more vegetables and less junk food, drink less alcohol, give up smoking, work out daily, sleep eight hours each night. Fad diets and exercise routines are fads for a reason: because they employ gimmicks rather than the tough-but-true fundamentals.
If you want to extend your life expectancy and continue working and living as a healthy adult, change your day-to-day routine.
16. Max Out Retirement Contributions
You’re in the final stretch before retirement, so take advantage of every tax benefit you can.
Because in your 60s, there’s no downside to contributing to your retirement accounts. You can access the money any time with no penalty.
If you expect your taxes to go up in retirement, contribute to a Roth IRA. Remember, come age 72 you need to start taking required minimum distributions from your traditional IRA, which might bump up your income taxes. As a refresher, you pay taxes on the contributions to Roth IRAs, but they grow tax-free and you pay no taxes on withdrawals in retirement.
17. Put Your Children Second
If you had children later in life, you might still have kids in high school, college, or recently graduated. And you might have generous plans to help them cover their college education costs.
Forget what you’ve heard all your life about putting your children first. Your retirement must take higher priority over helping your children pay for college.
Why? Because they have plenty of ways to pay for their own college education, but you only have one way to fund your retirement: your own nest egg. Social Security is a supplement only, not a way to fund your entire retirement.
If you hold any doubts about your ability to fund your retirement, hold off on helping your kids with college. You can always pay off their student loans later when and if you feel confident about your retirement savings.
Your kids might curse you now, but they’ll thank you 15 years from now when they don’t have to put you up in their house because you ran out of money.
18. Reevaluate Your Advising Needs
Consider a hybrid or human investment advisor to sit down with you and discuss your unique needs. They can answer all those pesky questions about safe withdrawal rates, managing sequence risk, and all the rest. Plus, they can help you optimize your investments for lower taxes.
19. Reduce Your Portfolio Risk
The first topic your financial advisor will bring up is managing risk as you transition to retirement.
Expect them to push you to sell some of your stocks and buy more bonds. But before you sell all your stocks, remember that some of your “investment” funds may have already gone toward low-risk “investments” like paying off your auto and home loans early.
For a classic low-risk approach, you could follow the Rule of 100: subtract your age from 100, and keep that percentage of your asset allocation in stocks. In today’s perpetual low-interest environment, I personally find that too conservative.
Consider a portfolio of 50% to 60% stocks, 20% to 40% bonds, and 5% to 20% diversified real estate investments.
Among your stocks, shift them away from riskier asset classes like emerging markets, small-cap funds, and individual stocks, and into large-cap U.S. funds and reliable dividend ETFs. For your bonds, look at municipal bonds as a relatively safe investment with tax benefits that boost your effective return. And for your real estate assets, look into real estate crowdfunding investments like Fundrise, Streitwise, and GroundFloor.
You can also consider annuities to further limit your risk.
Aim to manage risk rather than eliminate it entirely. As much as you want to limit risk, you also want your nest egg to ideally keep growing, rather than to wither over time.
20. Consider Consolidating Your Accounts
It’s all too easy to lose track of financial accounts when you have 15 of them across different banks, brokerages, and employers.
If you’ve left a job where you had an employer retirement plan, consider rolling it over to your IRA. If you have multiple checking accounts or savings accounts, now is a good time to consolidate them.
You can also track all your financial accounts in one place, such as Mint.com.
Remember, getting older doesn’t do your memory or mind any favors. You can probably still juggle all your various financial accounts today, but as you age you want to keep your finances as simple as possible.
Consolidating accounts also makes it easier for your children to help you manage your finances in the future, and keeps your estate planning easier.
21. Update Your Estate Plan
As your assets change, so does your estate plan.
But estate planning also includes medical planning, and documents such as a living will, advance directive, or power of attorney should you lose the ability to make decisions for yourself.
If your estate is large or complicated, consider getting help from an estate planning attorney as well. They can help you ensure all your wishes are carried out both before and after your eventual demise.
22. Track 3 Numbers Each Month
Every month, I track three simple numbers: my savings rate, my net worth, and my FIRE ratio.
Your savings rate is the percentage of your income that goes toward savings, investments, or early debt payoff. Your net worth is the total sum of your assets, minus the total of your liabilities and debts.
Despite the intimidating name, FIRE ratio is just the percentage of your living expenses that you can cover with passive income from investments and Social Security. If you spend $5,000 per month and generate $4,000 in monthly passive income, you have a FIRE ratio of 80%.
For younger adults, a 100% FIRE ratio means they’ve reached financial independence and can retire early (hence the acronym FIRE). But in your 60s, you don’t necessarily need a 100% FIRE ratio to retire. You can draw down on assets, such as selling off stocks, to pad your retirement income.
Still, tracking your FIRE ratio offers an easy gauge of your progress. And if you don’t have to sell off any assets to cover your living expenses, sequence of returns risk poses far less of a threat.
The clearer your vision for your ideal life post-career, the more likely you are to achieve it.
Plan out exactly where you want to live, what you expect to spend, what kind of post-retirement work you’d like to do (if any). You might be able to quit your day job now in favor of a fun, laid-back gig — or you may have years to go in order to catch up on retirement savings.
Don’t be afraid to adjust your target nest egg by lowering your retirement living expenses either. There’s nothing wrong with deciding you’d rather eat out at fewer restaurants in retirement or living in a lower-cost area in exchange for retiring years early.
Whatever your priorities, make sure you’re intentional about them — and that you understand how to pay for them.