When you hit your 60s, you don't have much time left before retiring. Unfortunately, many people who have reached this milestone have found they're behind where they need to be in order to be ready to leave work. In fact, according to recent research from the Federal Reserve, just 45% of non-retired adults in their 60s believe their retirement savings are on track.
If you've come this far without building a big enough nest egg to provide financial security, some triage is in order. The good news is it's not too late if you follow a few key tips.
Figure out how much income your savings and Social Security benefits will produce
If you're nearing retirement, you should be able to get a good idea of how much money you'll have available.
You can visit mySocialSecurity and sign into your online accounts to see what your benefits would be if you claimed them at 62, full retirement age, or 70. You can also use an online benefits calculator to estimate the amount of your benefits if you plan to retire at a different age.
To figure out how much income your savings will provide, decide on an acceptable withdrawal rate. Traditionally, experts recommended following the 4% rule, which meant withdrawing 4% of your account's value the first year and then increasing withdrawals to keep pace with inflation. Thanks to lower projected returns in the future and longer life spans, however, experts now believe there's a risk of running your account dry with this approach. You may want to use recommendations from the Center for Retirement Research at Boston College instead, or simply opt for a withdrawal rate of around 3% to 3.5%.
Once you've decided on a withdrawal rate, look at your current investment account balance and estimate how much it's likely to be when you're ready to leave the workforce. There are online calculators that help you figure out what your account should be worth when you're ready to quit work. If you see your account is likely to have around $350,000, you'd apply your desired withdrawal rate to see the amount of income you'd have. If you were withdrawing 3.5% of $350,000, your investments would produce about $12,250 in annual income.
Add your investment and Social Security income together to see the amount of money you can expect to have coming in as a retiree.
Determine the amount of your likely shortfall
If you're in your 60s already, you're pretty close to retirement and should be able to get a reasonable idea of how much you'll spend once you leave work. Just take a look at your current budget, subtract expenses you'll no longer incur as a retiree, and add in money for anything extra you plan to spend on, such as travel. Don't forget to factor in healthcare expenditures, too.
When you have a good idea of what your budget looks like, compare the income you'll need to the income available. If you find your income can cover your spending, you have no problem. But if you'll fall short, you've confirmed that your retirement savings aren't on track, and you need to make some changes.
Raise your account contributions and take advantage of catch-up contributions
If you're still at work, you have time to contribute to your 401(k), IRA, or other retirement savings accounts. And once you're 50 or over, you can contribute more money to these accounts each year thanks to catch-up contributions. If you've projected a retirement shortfall, aim to contribute enough to close the gap between spending and income. This may mean making drastic budget cuts in other areas or even picking up extra income through working more hours or trying out a side job.
Look into working longer or following a nontraditional path to retirement
If you can't save enough to eliminate the shortfall between projected spending and projected income at your desired retirement age, working longer could be your best (and sometimes only) solution.
If you're able to continue working and push back retirement, you won't have to start drawing down your savings so soon. You can delay filing for Social Security benefits and earn delayed retirement credits up until 70, which will raise the size of your monthly checks. And you can keep contributing to your retirement accounts so you have more money when you do leave work.
Even if you don't want to work full time, there are other nontraditional paths to retirement you can follow instead of just giving up work cold turkey. You could look into consulting or part-time positions, for example. Just be aware that if you plan to hold a job and collect Social Security simultaneously, earning too much money can result in a temporary reduction in your benefits unless you've reached full retirement age.
Reduce your cost of living
When you're falling far short on retirement readiness, downsizing your home and reducing your costs of living may become necessary as a retiree -- especially if you can't work or can't dramatically increase your savings.
A relocation to an area with a lower cost of living and more favorable tax rules could make a huge difference in how far your money goes if you're currently living in an expensive state. And homeowners with big and costly houses could potentially downsize to free up home equity to invest while also lowering their housing expenditures.
If you're off track in your 60s, there's time to get back on course
If you haven't retired yet and you're among the 45% of Americans in their 60s worried about retirement savings, there's still hope. While you shouldn't waste time, you can turn things around if you buckle down and make a commitment to saving money and cutting costs as a retiree.