Entering your 60s heralds the approach of retirement, or at least what is considered the full retirement age. In this decade, it’s important to finalize your retirement preparations. Your focus will be on maximizing your retirement accounts, deciding when you want to retire, planning for healthcare costs and, of course, enjoying your golden years.
If you’re looking for help preparing for retirement, consider reaching out to a financial advisor.
Maximize Your Retirement Accounts
Part of financial planning for 60 year olds will likely involve maximizing contributions to your retirement accounts during your final working years. Understanding contribution limits, as well as catch-up amounts, can help you bolster your retirement savings and secure your financial stability.
Contribution limits for retirement accounts such as 401(k)s and IRAs are set annually by the IRS. For 2024, the contribution limit for a 401(k) is $23,000, while the limit for an IRA is $7,000. These limits apply to individuals under 50, but those over 50 benefit from additional allowances. In 2024, individuals over 50 can contribute an additional $7,500 to their 401(k) and an extra $1,000 to their IRA. These additional contributions can help you compensate for any years when your contributions may have been lower.
Roth accounts, including Roth IRAs and Roth 401(k)s, offer unique tax advantages that can be particularly beneficial as you near retirement. Contributions to Roth accounts are made with after-tax dollars, but withdrawals in retirement are tax-free. This can be helpful if you expect to be in a higher tax bracket in the future.
And since contributions to traditional IRAs and 401(k)s are tax-deductible, they can lower your taxable income. For those nearing retirement, maximizing these tax deductions can result in significant tax savings.
Deciding When to Retire
Choosing when to stop working will significantly impact your financial situation in retirement. It’s one of the most important decisions you’ll have to make when financial planning for 60 year olds. In making this decision, it’s necessary to understand your full retirement age (FRA), which is the age at which you are entitled to receive full Social Security benefits.
The FRA varies depending on your birth year, but for most people, it ranges from 66 to 67 years old.
Retiring before your FRA will reduce your monthly benefits, while delaying retirement past your FRA can increase your benefits. So if you start receiving benefits at 62, the earliest you can possibly do so, your monthly payments will be lower than if you wait until your FRA. On the other hand, delaying benefits until after your FRA can increase your monthly payments by up to 8% for each year that you delay. However, delaying your retirement past the age of 70 does not result in any further increases in your monthly Social Security benefits.
Understanding the implications of when you choose to stop working can help you make a more informed decision about when to retire. Continued employment can not only increase your retirement savings, but also reduce the number of years you need to rely on those savings. Working longer can also give you access to employer-sponsored health insurance, thereby delaying your need to purchase individual coverage or rely solely on Medicare.
Understanding Medicare
Another part of financial planning for 60 year olds involves understanding and budgeting for healthcare and insurance costs.
Medicare eligibility begins at age 65, and Medicare will provide the bulk of your healthcare coverage in retirement. But even with Medicare, out-of-pocket costs can accumulate, making supplementary insurance worth considering.
Medigap, also known as Medicare Supplement Insurance, helps cover some of the healthcare costs not included in Medicare, such as copayments, coinsurance and deductibles. These plans are standardized and sold by private companies, offering various levels of coverage. Evaluating different Medigap policies can help retirees choose a plan that aligns with their healthcare needs and budget, thereby supporting their overall financial security.
Long-term care insurance is also worth considering when planning for healthcare costs in retirement. This type of insurance helps cover the cost of services that assist with activities of daily living, such as bathing, dressing and eating, which Medicare does not typically cover. Given the high cost of long-term care facilities and in-home care services, having this insurance can protect your savings and provide peace of mind. It’s advised to purchase long-term care insurance in your late 50s or early 60s, when premiums are more affordable.
Bottom Line
Financial planning for 60 year olds involves maximizing retirement savings, including making catch-up contributions, as well as deciding when you’ll retire and budgeting for health care costs. You might want to explore supplementary insurance options and consider long-term care insurance to protect your savings and provide peace of mind.
Financial Planning Tips
- If you’re creating a financial plan, a financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- In addition to long-term care insurance, life insurance is something to consider, as well. There are different types of life insurance you can choose from, including term and permanent life. Calculating how much life insurance you need can help when choosing which policy is best for you.
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