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How to retire at 60: Retirement goals and rules to know

Retiring a few years early is possible, but you'll have to plan ahead to cover the gap between age 60 and when you qualify for retirement benefits like Social Security and Medicare. Learn how much you'll need and how to save below.



May 1, 2024

5 min. read

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Key takeaways:
  • Early retirement at 60 is just in time to enjoy penalty-free withdrawals from retirement accounts like your 401(k) and IRA. 
  • You won’t qualify for full Social Security or healthcare benefits through Medicare until you reach each program’s retirement age. 
  • A current retiree’s lifestyle would require about $1,506,094 to cover 16 years in retirement (assuming the average 76-year lifespan). 

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      The average U.S. retirement age was 61 as of 2022, and there’s a reason why people like to retire five years before full Social Security benefits kick in. It’s because you can finally enjoy penalty-free withdrawals from your tax-advantaged retirement accounts at 59 1/2 years old. 

      Early retirement has its challenges, but it’s entirely possible once you know how to retire at 60. Five or so extra retirement years might not seem like much now, but you’ll be thankful for that half a decade by the time you’re there. 

      1. Understand the financial challenges of early retirement

      Early retirement at any age means you won’t have full access to your retirement benefits. This includes:

      • Full Social Security retirement benefits
      • Medicare and Medicaid eligibility
      • Pension (depending on your retirement plan guidelines)

      If you’ve contributed to retirement for decades but didn’t plan on these extra years, you’ll likely have to adjust your savings goals and current contributions to make up the difference. Your revamped savings goal should factor in expenses for these additional years, as well as tax implications, healthcare costs, and early withdrawal fees.

      For example, retirees eligible for Social Security benefits collect an average of $1,856 a month. That’s 55% of the median American income, which could easily cut your retirement savings needs in half. 

      Clocking out early is a great goal, but doing so without a plan is a huge retirement mistake

      Bar graph compares the most common income sources for retirees, leading with Social Security.

      2. Determine your retirement income needs

      Financial situations evolve as you age. You might pay off a mortgage or auto loan and reduce your monthly payments, but your property taxes or medical care costs might increase, too. 

      Consider your personal lifestyle and the financial factors that might impact your future expenses:

      • Increased medical costs as Fidelity estimates single seniors age 65 would spend $157,500 on medical care in retirement. Consider how a chronic illness, family history of disease, or gap between employer-provided insurance and Medicare eligibility can impact your expenses. 
      • Housing expenses if you get a new mortgage to downsize, move to a rental, or need assisted living long-term. New mortgages, refinanced mortgage rates, or alternative living solutions can increase or decrease your costs, depending on your current housing situation. 
      • Changes in retirement income that may come with future Social Security decreases, lost or gained passive income streams, inheritance, and other financial changes over the years. 

      Experts commonly recommend you save enough for retirement to generate 80% of preretirement income, but what’s comfortable for you might vary. 

      Considering current average expenditures at $72,967 and a 3.3% average annual inflation rate, 16 years of retirement will require a $1,506,094 nest egg to stay in the black. 

      Statistics show how common unexpected life events prompt people to retire early.

      It’s impossible to know exactly how many retirement years you have to cover or what life events might impact your plans, so it’s better to overestimate rather than underestimate. The average U.S. life expectancy is 76, so plan for at least 16 years if you want to retire by 60.

      3. Adjust your retirement strategy

      Hopefully you already have a retirement strategy in place, but an intentional plan to retire early is a must to guarantee financial stability throughout your golden years. 

      You can begin penalty-free withdrawals from most retirement plans by age 59 1/2, so continue to prioritize tax-advantaged investments. 

      As you age, it’s also common to transition from riskier investments to more secure assets to ensure you don’t lose retirement funds in the market with so little time to recover. 

      Here are some other income considerations to help you plan for 16+ years of retirement. If you’re just kicking off your retirement strategy or want some extra help crunching the numbers, chat with a financial planner to get on track. 

      Prioritize tax-advantaged accounts

      While your retirement accounts might be tax-advantaged, that doesn’t mean they’re tax-free investments. These are valuable tools, but you have to understand how their tax benefits work. 

      Traditional 401(k) and IRA accounts are subject to taxes when you withdraw your funds, so you start paying income taxes as you cash out your retirement savings. This works well for most people since your income is likely lower in retirement than it was at the height of your career. When you fall into a lower tax bracket, you pay less tax.

      Roth accounts won’t earn any tax deductions, but they do earn tax-free returns. You contribute with income you’ve already paid taxes on, so you don’t owe any additional tax when you cash out for retirement. This is best if you expect your earnings and tax rate to increase by retirement and want to avoid adding to your future tax burden. 

      Understand your income and investment tax liabilities

      Social Security is a significant retirement income source and up to 85% of your benefits may be taxed as ordinary income. So, it’s not totally free money, and you need to account for these liabilities when you’re calculating your retirement income. 

      You’ll also want to factor in your relationship. Retirement benefits and tax implications vary with married couples who may receive spousal benefits and typically file taxes jointly. You might be able to claim an elderly or disabled spouse credit on your taxes, as well as increase your retirement account contributions during your working years.

      Finally, any long-term investments sold in retirement are subject to capital gains taxes. These long-term asset rates are more favorable than income tax rates.For example, single retirees in 2024 with less than $47,025 in taxable income can take advantage of a 0% capital gains rate. These retirees can cash out capital assets rather than other income streams to reduce their total tax liability. 

      Make the most of catch-up contributions

      The IRS permits catch-up contributions for individuals 50 and older. This increases the annual contribution limit to:

      • 401(k)s
      • 403(b)s
      • Governmental 457(b)s
      • IRAs

      The contribution limit for a 401(k) is $23,000 for 2024, plus the $7,500 catch-up limit for people 50 and older for a maximum $30,500 annual contribution. That’s a nearly 30% increase in contributions for senior savers. 

      You can also add a $1,000 catch-up contribution to your IRAs, bringing the total annual contribution to $8,000. 

      Plan for future retirement benefits

      Retiring early means you won’t qualify for Social Security or Medicare immediately, so you have to plan to live on your retirement savings alone for a few years. But, you can still access and enjoy these by age 67 (or earlier if you’re born before 1960). 

      A majority of retirees rely on Social Security for part of their income, but it’s likely not enough to fund your retirement lifestyle. You can start collecting benefits as early as age 62, but you still need to plan for that two-year gap between 60 and 62. 

      Collecting benefits before or after age 67 also affects how much of a benefit you receive.

      You’ll receive reduced benefits throughout retirement if you start collecting early. On the other hand, you can increase your benefits if you wait until after age 67 to collect. Age 70 is the latest you can start claiming Social Security benefits.

      Check out this Social Security Administration (SSA) calculator to estimate your benefits.

      Connect with your local SSA office and organizations, like the National Council on Aging, for a full list of benefits and services available to seniors. Then, you can determine how this impacts your retirement income and future expenses. 

      Identify new income streams

      More people are leaning on passive income for a secure retirement. These income streams may require some startup costs or time investments, but they’re designed to generate profit with as little ongoing maintenance as possible. 

      This can include:

      • Real estate that builds equity or generates rental revenue.
      • Digital products like printable coloring pages, professional ebooks, and checklists users can purchase and download. 
      • Websites and domains that generate ad revenue or promote digital products. 
      • Peer-to-peer lending, where you provide a private loan with an interest rate for repayment. 

      These aren’t likely to replace your annual salary, but this extra cash can help increase your contributions to retirement accounts or general savings or investment accounts while you work. Once you retire, the extra income pads your pockets so you can leave as much of your retirement fund intact as possible. The longer it’s invested, the more it earns. 

      How much money do you need to retire by 60?

      Your retirement goals depend on several factors, including your current age and income, retirement lifestyle goals, current assets, and so much more. 

      A common rule of thumb is to plan to replace at least 70% and up to 80% of your current income annually using funds from your retirement nest egg. Of course, you need to consider the rising cost of living, inflation rates, and tax liabilities that can dig into your retirement income. 

      Considering current annual expenditures at $72,967 and an average 3.3% inflation rate, a savings goal of $1,506,094  should last until age 76 – the current U.S. life expectancy. 

      The Playbook Take: Plan Ahead And Enjoy Early Retirement

      Once you know how to retire at 60, you can adjust your investment strategy and income goals to make it work. You’ll need larger savings overall to accommodate the extra years and avoid early Social Security enrollment, but compound interest can do the heavy lifting if you start investing early

      Don’t forget to think through tax strategies to reduce your liabilities in retirement and maximize your returns for a stable and stellar retirement.

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      About the author

      Phil Wettersten, Series 7 & 66

      Head of Product Success

      Phil holds both Series 66 and Series 7 credentials and previously served as an Investment Consultant at TD Ameritrade. At Playbook, he's the authoritative voice representing our customers, spearheading product enhancements and strategic planning. Phil's unwavering dedication keeps us ahead in delivering top-notch user experiences.

      Tanza Loudenback, CFP®


      Tanza is a CFP® certificant, writer, and editor. From 2015 to 2021, she was a top-read author and editor at Insider. Her work focuses on helping people make smart decisions with their money and is published by a variety of online publications.

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