How much should I have saved for retirement by 60?

Your 60s can be an exciting time. You may be nearing the end of your career and preparing to enjoy the well-earned fruits of your hard work in retirement. Or you might be planning to work beyond conventional retirement age, either in your current job or in a new dream job. Whatever you’ve mapped out for your retirement journey, you may be wondering if you’ve saved enough to cover your lifestyle. Read on for guidance on how much to save, and advice on how to boost your savings in the upcoming years.

We recommend that by the age of 60, you have about eight times your current salary saved for retirement. So, if you earn $75,000 a year, you would have between $525,000 to $600,000 in retirement savings by 60.

Think of it as a general guideline. Your plans and goals for retirement are unique to you, so it’s best to start with a clear understanding of how much you will need to cover your expenses in retirement.  And don’t underestimate how much you will actually spend.

Here are four questions to ask yourself before plotting out a retirement budget:

When will you retire?

What lifestyle do you want?

Where will you live?

How much debt do you have?

The recommendation for 7-8 times your salary assumes you're retiring at full retirement age. If you plan on retiring earlier than that, you will need more savings.

Do you dream about traveling extensively, taking up new hobbies, or being generous with loved ones or your favorite causes? If so, you may need to increase your savings amount.

If you plan to move after you retire, be sure to research the cost of living and applicable tax laws where you plan to live. You'll want to plan for a cost of living relative to where you are now.

If you’re intentional about how you use it, debt can be used smartly as an investment into something meaningful to you. On the other hand, if you accumulate too much of it, debt can hold you back from achieving what you really want in your retirement. A financial advisor can help you make mindful decisions about the debt you will carry into retirement.

Once you have a clear picture of your ideal retirement from the questions above, you will need to consider ways to help ensure you will have enough income to cover your expenses. Estimating what you’ll have coming in each month can provide you with the assurance that you’ll be able to retire comfortably or give you the opportunity to adjust now to increase your savings.

Consider the following four sources of retirement income, and then use a retirement income calculator for a personalized result:

You’re eligible to claim your Social Security benefits as early as age 62, but that reduces the amount you’ll receive. If you wait until full retirement age (either 66 or 67, depending on your birth year), you’ll get 100% of your benefits. And if you can wait until you’re 70 years old, you can make the most of Social Security by receiving between 124%-132% of your benefits.

Visit ssa.gov/myaccount to get an estimate of your benefits as they stand today.

Common retirement savings plans, like 401(k)s, 403(b)s and 457(b)s and individual retirement accounts (IRAs) are some of the best ways to build your retirement budget.

You will need to think about when you want to start taking income from these sources. Many of them will be subject to RMDs at a specific age, but you can start taking penalty-free withdrawals as early as age 59½.

Though it's becoming less common, some people might have pension income from their careers. Pensions guarantee a specific benefit amount based on a worker’s income and years of service to the employer. If you do have a pension, be sure to factor that into your calculations as a source of guaranteed income.

The primary purpose of life insurance is death benefit protection, but there are other ways permanent insurance can be used. If you no longer need the full amount of death benefit protection, you could opt to receive payments from the contract’s cash value to supplement your other income sources. And a portion of those payments potentially would be tax-free. Permanent life insurance could be a valuable option to consider as you assess your retirement plan assets.

In the Thrivent Retirement Readiness Survey*, respondents said that the most valuable piece of advice they would have given their younger selves would be to learn about tax implications for their retirement savings.

Many of your retirement income sources will be taxed once you start withdrawing the money in retirement. Even Social Security benefits may be subject to taxation. A high tax bill could have a substantial impact on your nest egg, especially if many of these accounts you are relying on are taxed at the same time.

This is were the concept of income tax diversification comes in. It involves investing in a variety of tax-advantaged accounts to help minimize how you’re taxed on those accounts now and in the future. This concept advocates that you should diversify your holdings into three different buckets: tax now, tax later and tax never.

• "Tax now" accounts are ones in which you've paid taxes on upfront. These types of accounts are typically suited for current or short-term needs. Examples of "tax now" accounts include checking accounts, savings accounts and mutual funds.
  
• "Tax later", or tax deferred, assets are ones where your tax liability will come once you withdraw funds. "Tax later" assets are generally earmarked for longer-term needs, like college and retirement. Examples of "tax later" accounts include 401(k)s, traditional IRAs, variable annuities and fixed annuities.
  
• "Tax never" or tax-free assets generally offer preferential income-tax treatment on the accumulated value and distribution of funds. Examples include Roth IRAs, Roth 401(k)s and life insurance.

If you feel uncertain about how prepared you are for retirement, you’re not alone. Only 5% of near retirees said they have everything planned out and are fully ready for retirement, according to the Thrivent survey. And 44% say they’ve done only minimal planning. But it’s not too late. Here are some great ways to catch up on your retirement savings and renew your commitment to your retirement goals:

If you’re 50 or older, one of the best tools at your disposal is catch-up contributions to your retirement accounts. From age 50 on, you’re allowed to put more than the maximum contribution into your retirement accounts to help boost to your savings. Higher contributions can help reduce your taxable income.

2023 contribution limits and catch-up contribution maximums vary greatly by the type of plan, as shown here.

Great news for savers 60 and older. The SECURE Act 2.0, passed in late December 2022, added a special catch-up for workers aged 60 to 63. Beginning in 2024, you can contribute either $10,000 or 150% of the standard catch-up amount, whichever is more. Beginning in 2026, the $10,000 amount will be indexed for inflation.

The legislation also mandates that beginning in 2024, all catch-up amounts for people who earned over $145,000 in the previous year must be deposited into a Roth account. The earning amount will be adjusted for inflation starting in 2025.

A Roth IRA conversion involves taking a tax-deferred retirement savings account, like a traditional IRA or 401(k), and moving that money into a Roth IRA, which won’t be taxed again after you pay taxes on the amount you convert.

Roth conversions can be a great way to build tax diversification into your retirement savings. Ideally, you want the timing in which you owe taxes on your various accounts to vary so your tax burden isn’t too great at one period of time.

Roth conversions also help alleviate concerns of future tax rates, because you pay taxes you convert and won’t need to predict your future tax rates.

During the last few years of your career, you might want to consider what expenses you could trim from your budget. Simple things like canceling gym memberships and subscriptions, dining out less or taking public transit more often could help increase your retirement savings.

You also can use this time to test out your retirement lifestyle. If you think you're going to downsize to a smaller house, why not move a little earlier? The amount you save on utilities, property taxes and other expenses could go a long way toward slowing down your cash outlay.

If you’re behind on your original investment goals, you might consider putting off retirement. Each extra year that you earn a paycheck is another year you can put money aside and not draw down your savings. It's also a chance to delay Social Security to increase your eventual payout—that is, until you max out your benefits at age 70.

To reach retirement with your dreams intact, you’ll need foresight and a willingness to plan for roadblocks along the way. After all, no journey is predictable. At this stage of life, it’s smart to account for the risks to the savings you’ve worked hard to put into place.

Work with a financial advisor to:

• Build some hedges against high tax rates and inflation, which can throw you a curveball when you’re anticipating a fixed income.
• Explore solutions that guarantee you don’t outlive your money.
• Adjust your risk tolerance to help shield against market volatility.
• Protect against the real risk of a health care event draining your savings

Whatever you see for yourself in this exciting next stage of life, you want to be confident that you’ll have the means to sustain that vision. Find a local Thrivent financial advisor who understands your core values and can help create a retirement plan tailored to fit your needs.