More Americans are becoming open to the idea of achieving financial independence and retiring early. But, some may not want to retire too early, for various reasons. However, being able to retire at 60 is still retiring early, and can help you achieve more. So here’s the big question…”How much money do you need to retire at 60?”
How Long Does Retirement Last?
First, let’s look at how long your retirement could possibly last. The first thing to look at is that the average American life span is 78.5 years.
Of course, there are outliers to these numbers. For example, almost all of the women in my family lived to 95-101 years old. And the men lived until 85-90. As you can understand, genetics can play a part in how long you live. And of course, diet, exercise, healthy practices (like regular check-ups), and other factors can make a huge difference as well.
If the average American lives until almost 79, that means you’ll need enough money in retirement to survive, and even thrive, for about 20 years. With that, how much do you really need to save in order to set yourself up for at least 20 years?
The Average Retiree Needs
The average retiree needs about 8 times their yearly salary saved by the time they reach 65. So if you made $100,000 a year, you’d need around $800,000 saved. But of course, that number fluctuates based on your salary and cost of living.
It is entirely possible to retire with just $500,000. Some retirees are doing it on even less. And of course, some have saved much more. But, the above equation is what experts recommend.
It’s also important to note that if you retire at 60, you won’t get access to other benefits like social security, Medicare, and others without penalty, or until you reach 65. So you’ll have to factor in the additional costs of penalties and health insurance to your retirement plan as well.
How Much Money Does the Average 60 Year Old Have in Retirement?
The average 60 year old has about $1,217,700 saved towards retirement. However, because this number also reflects the highest earning households, it’s also important to look at the median number, which is $266,400.
So, if you were to retire right now at age 60, with the median number, you’d have about $270,000 to live on for at least about 20 years. That may seem like a large number, but that only breaks down to about $13,500 a year.
And remember, for at least 5 years, you also wouldn’t receive Medicare or any other retirement benefits without penalties. Would you be able to survive on less than $14,000 a year?
So, how much do you really need to retire at 60? Well, aside from a fairly healthy retirement account (with around 8x your yearly salary), let’s look at some other factors that could affect you.
Look At Your Current Living Expenses
How much do you need to live comfortably now? Multiply that number by the number of years you expect to be retired, and add on a few extra years just in case. Are you where you need to be?
For example, if you need $50,000 a year, and prepare to be retired for about 30 years, you’d need about $1.5 million before retirement. And, if you want to prepare for inflation (more on that below), you may want to have $2 million saved as backup.
Of course, that number could fluctuate based on…
- debt payoff,
- and even a move to a more affordable country overseas.
But overall, you’d get a clear picture of what you need to save based on looking at your expenses now.
Think About Future Inflation in Retirement
Also, another factor to take into consideration is future inflation. The average inflation is about 4% currently. Of course, this number fluctuates based on a number of factors, but it does typically stay around this percentage. This means that next year, things will be about 5% more expensive than they were this year.
So with that in mind, you’re looking at about a 100% increase (roughly) over a 20 year span. So where you could live on $50,000 this year, you may need double that in 20 years.
Again, this is just an average, and not every industry is affected at the same rate and all at the same time. However, it’s important to prepare for when your $50,000 may not stretch as far.
Of course, you could always live more frugally, move to a cheaper area (or even country), and make sacrifices to try and beat inflation and continue living on $50,000 a year. However, I personally believe preparing for the worse, and living comfortably no matter your age, is important and deserved.
The last factor to keep in mind is the possible benefits that you’ll have. Sure, you may have to keep money a little tighter before you get benefits like Medicare or Social Security.
- But could you start taking out your pension?
- Would you be able to depend on a spouse and their health insurance?
- Will you be making any disability, money from investments (like dividends or rental income), or anything of that nature?
This can help you nail down a better idea of what you’ll be making if you retire at 60, and before you start looking at withdrawing the funds you’ve saved.
Related: How Much Do I Need to Retire by 55?
Retire At 60: It Is Possible
So, can you retire at 60?
And if you can, how much is that going to cost you? As you can see, it is possible to retire at 60, even if you don’t have millions of dollars saved.
- The key is to focus on what you personally need in retirement,
- how much you live on now, and
- factor in a few extras, like a longer life span and inflation.
If you can live frugally now and save more money, it’s entirely possible to have $500,000 or even $1 million saved before retirement.
And of course, those numbers will depend on you and how much you can realistically save and invest, what you’ll need during retirement, and what you’ll want to do. But overall, retiring early isn’t impossible at all.
So how much do you need to retire by 60? Are you targeting $500k? $800k? $2 million? Tell us in the comments below!
AUTHOR Kimberly Studdard
Kim Studdard is a strategy consultant and course launching expert. When she isn't spending time with her daughter and husband, or crying over This Is Us, you'll find her teaching other mompreneurs how to scale their business without scaling their workload.