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6 Financial Goals to Reach By Age 60 · Retirement Answers

• 0:00
  Jacob: Hey, friends, and welcome back to another episode of Retirement Answers. My name is Jacob Duke. I am your host, as always. This week on the show, I want to share six financial goals that I think you need to have reached by age 60 to have a successful retirement. So let's go ahead and jump in and talk through these six things.
• 0:16
  The first thing that you've got to have figured out by 60, in my opinion, is you need to know how much you need saved for retirement. So I might refer to this as your retirement number. How much do you have to have and when do you have to have this by in order to never run out of money for the rest of your life? Meet all of your different goals, meet all the different plans and things that you want to accomplish throughout the rest of your life. So the hard part there is everyone has different idea of how much they need for retirement.
• 0:42
  If you talk to one person, they might say they need $5,000,000. Talk to another person, they might think they need $600,000. The range here in terms of what someone thinks they need to have to retire can be huge. But what I figured out as someone who's a retirement planner is all the different rules of thumb that we might know about or read about online, they really don't matter. Some rules of thumb suggest you have a certain multiple of your income in the year in which you retire, you have to have some multiple of that three times, five times, eight times, 10 times a certain salary that you've been earning.
• 1:11
  That's one way of maybe getting there. I don't really like that way because it doesn't make sense to me. It's based on how much money you make, not based on how much you spend. And what you've got to figure out as you're determining your retirement number is how much money do you spend? You can't figure that number out in terms of how much you need until you know how much you spend.
• 1:28
  So one person who spends $10,000 a month compared to another person who only spends $5,000 a month, the person that spends $5,000 a month does not need as much money compared to that person who spends 10,000, even though they could have both been earning the same amount of money. Okay, so how much you make does not really dictate how much you need, it really comes down to how much you spend. So again, I always recommend this, look back over the last twelve months, I want to see what you've spent on average on a monthly basis over the last twelve months. It's probably going be higher than you think. Okay, so be aware of that and don't be alarmed if it does come back higher than you expected.
• 2:02
  But what this does is, is it should tell you this is how much money I need on an annual basis based on my current spending amounts. Now, you've got to think about what retirement could be. Maybe you've got a mortgage right now, but you won't in three years, or you won't as soon as you start retirement, or maybe have some different debts, whether it be a HELOC or a credit card debt that you're going to have paid off before you enter retirement, but you've got payments on those now and you're paying those off. So that's being calculated in your monthly spending averages. You got to make sure to do this correctly so that you don't over inflate how much you need because what ends up happening is a lot of people work way too long, ended up with way more money than they ever need, because they're never gonna spend that much money thinking they never had enough.
• 2:39
  So I don't want that to happen either. I don't want you to retire with too much, but I also don't want you to retire with too little. So you've got to have a really good pulse on what you spend in order to figure out your retirement number. Also, a lot of people think about retirement spending in terms of percentages. So like we know about the 4% rule, you can spend 4% of your starting nest egg balance over the next thirty years with a specific allocation on the portfolio and never run out of money.
• 3:02
  And again, I don't like this one because no one spends a certain percentage every single year out of their portfolio in retirement. Here's a perfect example. Let's say you retire at 60 and you don't take Social Security until 67, but you need a $100,000 a year. Well, you're gonna have the majority of that $100,000, if not all of it come from your portfolio and your savings that you've built up over your career. Now, once you get to 67, let's say you're married and you and your spouse, you have Social Security incomes that come in, well, at that point, you're going to need less money out of your portfolio because your Social Security will be making up a decent chunk of your monthly income need.
• 3:36
  So in that situation, your distribution rate is going to be a lot higher on the front end, those first five to seven years, and it's going to be a lot smaller once you turn on Social Security. So a 4% rule doesn't really apply in that scenario, because if you're sticking to it specifically saying, can only take 4% out every single year, well, you're gonna have not enough money to retire year one because you can only take 4% of that portfolio. That means you gotta have a lot more money saved up to meet your income needs in year one without considering the fact that in the later stages of retirement, you're gonna have Social Security, perhaps a pension or some sort of other fixed income coming in. That means you won't need as much to pull on or pull from at that stage of life. So your spending or your distribution rates are going to evolve and change over time as your different income sources turn on.
• 4:22
  So I would not follow the 4% rule to a T. Now, here's what the 4% rule can do. It can absolutely double check and make sure that you're not spending too much money for too long. Okay, so if you have an extended period of time, let's say you retire at 50, and you're trying to spend eight to 10% of your portfolio every year, you know, in the first fifteen years until you get to Social Security age, that could be a problem. Okay, so you've got to think about how long you're going to be spending a higher distribution rate from your portfolio and then kind of back into whether or not that's reasonable and what your distribution rate would be once you get your Social Security or pension or other fixed incomes turned on.
• 4:59
  So all that to say, you've got to analyze your situation. What are your true spending amounts that you've got going on every single month? What do you think your spending will be in retirement? Will be the same? Will it be higher?
• 5:10
  Will it be lower? You've got to really do some planning around this so that you know what your true retirement number is so that you can then jump into retirement confidently and know that you're doing the right thing. The second goal that you should achieve by age 60 is to be completely debt free. And I mean everything, no car payments, no credit cards, no home equity lines of credit, no mortgages and nothing. If you can be completely debt free by the time you're 60, or even by the time you're retired, what you've got here is you've got the opportunity to not have to spend a certain amount of money in a base amount every single month.
• 5:41
  What you're doing is you're reducing your floor down to zero, obviously, you're gonna have some normal expenses for electric bills and just home maintenance and just general bills that you're gonna have come up month to month, but the key there is you don't have this big chunk of money that you have to send out every single month to a bank to pay your mortgage, which could be upwards of $2.03 or $4,000 depending on what your your total balance is, the interest rate tied to that loan and how long you've had the loan. So I would say if you can be completely debt free, that's one of the biggest determinants on whether or not you can or cannot retire, because if you're debt free, that spending floor is reduced down to pretty much zero. So discretionary spending is really what we're focusing on at that point, which is really what retirement's about. It's about having fun, enjoying what you've earned and worked so hard for. So if you're not debt free yet, and you're getting closer to 60, if you can find a way to eliminate all of those different debts before you get there, that's gonna free you up so much to be able to retire on your terms and not work longer than you otherwise have to.
• 6:36
  The third thing that you should have accomplished by age 60 is you should have what's called a passive income. Now, when I say that word, you probably thought real estate, right? We think of real estate as passive income. You know, you're investing in let's say one rental property and someone's paying you rent so you can pay the mortgage and when that mortgage paid off, you just get to keep all that cash that's flowing in. We call it mailbox money.
• 6:56
  Hypothetically, that works great and there are people who do that and you might be one of those people. The reality is, don't know how passive it truly is. Even if you have a management company monitoring and managing all these homes and working with the tenants and making sure they collect rent every month. If you're not managing the tenant and you're not managing the property, you're managing the management company. So there's something about real estate that's not truly passive, meaning in the hands off, you will always have to have your hands in it in some capacity.
• 7:21
  And I would encourage you to because this is an investment. It's an asset. It's something that you value, right? So you want to be a part of it in some way. What I really mean by passive income is, are you able to make money on your investments or your wealth without actually having to work for it?
• 7:35
  That's what it is. Are you not having to go to a job every single day to make your income? Have you built up enough wealth to where that wealth is now compounding and working for you? Here's an example. Let's say you have a $100,000 and you make a 10% return.
• 7:50
  Well, 10% on a 100,000 is $10,000. Whenever you have a million dollars and you make a 10% return, that 10% return is now $100,000 instead of 10,000. So you get the same 10% return in both scenarios, but because you had more money, you have a higher dollar amount benefit. That's compounding. That's the way investing works.
• 8:09
  That's why the quote rich always get richer is because once you have a certain level of wealth and then you manage that correctly, you can make more money on that money without having to work any harder. So that's what I mean by passive income. What can you do to accomplish this? Well, you could have that real estate component, maybe you have rental properties or commercial real estate of some sort where you are generating an income from those assets. But I think one of the best ways to generate passive income is simply through a normal and traditional portfolio that can be IRAs, brokerage accounts, Roth IRAs, 401ks.
• 8:38
  If you have enough money built up and saved in those accounts by age 60, that money is going to continue compounding and growing over the rest of your life. And an interesting stat on this is that two thirds of people end up passing away with about 80% of the amount of money they started retirement with one day, meaning they did not spend very much of their total nest egg from the start until they pass away. So 80% is the value that's left over and about 30% of retirees actually end up with more money whenever they pass away compared to what they started with. So what does that tell us? Even though they're spending money out of their portfolio, number one, they're probably not spending enough if that's the case, but even if they are spending money out of their portfolio, their portfolio is still growing and accumulating at a faster rate than what they're spending.
• 9:18
  So that's what we want from passive income. Once you've created wealth, once you've created the opportunity to grow your money without working any harder, that is where you want to be when you enter retirement. So back to point number one, how much, you know, wealth do you have to have and how much passive income do you need from that wealth? Well, you've got to know what your retirement number is because some people don't need $5,000,000 and some people don't even need a million. I have clients that have retired with less than a million dollars and are doing wonderful.
• 9:43
  So don't think a certain amount of money is required, but once you do have a certain level of wealth, it gets that much easier and you can spend that much more. The fourth thing you've got to have figured out by 60 is your tax plan. You've got to think about when you're going to take money from your different accounts. You got to think about whether or not you should be saving to Roth or traditional in these last few years of work. You got to think about how you can utilize Roth conversions when the time comes to do that and how much you should be converting, if any at all.
• 10:09
  You got to consider your required minimum distributions that could be in play in the future for your tax deferred accounts. And you have to think about your state taxes and how that might play into your decisions around where you live in retirement. So going back over a few of these different things, I had a conversation with a client just yesterday where they were asking me, hey, Jacob, should I start doing my contributions to my Roth four zero one ks rather than the traditional four zero one ks? And if not, can you explain why? And the answer ultimately came out to be, you should continue making your contributions to the traditional four zero one ks side because the tax rate today that you're paying on the income that you would be putting into the Roth is actually gonna be higher than the tax rates you would have in retirement.
• 10:48
  So your distributions in retirement will be taxed at a lower rate, 10 or 12%, rather than 22% today. So it makes more sense mathematically to actually put that in a tax deferred side of the four zero one ks. So that's something you've got to think about. What are you earning right now while you're still working? What are you going to be earning in the future, if anything?
• 11:07
  And what are the differences in the tax rates between now and then? So typically, most people are going to have what we call these gap years in the first few years of retirement. So again, if you retire at 60 and you decide to take Social Security at 67, you've got about a six to seven year window there that you can do a bunch of different tax efficient planning with. You can do a bunch of Roth conversions if they are valuable, you can spend money out of your tax deferred accounts at minimal tax rates, you can do tax gain harvesting, if you have the opportunity to do that with a brokerage account. There's so many things that you can do in that particular time period, but you've got to have a plan for it.
• 11:39
  You've got to understand what the opportunities even are. So that's component number one of the tax plan. But you got to think about also to what your future tax obligations might be. So many people are unaware of the fact that they're going have huge tax bills in the back half of retirement once they reach either age 73 or 75, because required minimum distributions are going to be there forcing money to be taken out of those tax deferred accounts. So no plan is being executed until this stage of life once that required beginning date hits, and then they are in for a rude awakening at that point.
• 12:12
  And so these forced distributions are going be taxable every single year, and it goes even beyond just the actual distribution, the tax paid by you. It actually can impact a lot of other things. So let's think about this. It can impact your spouse if you pass away because your spouse normally would be the person to receive your IRA assets. And depending on a few different things, they have options there around how they structure those assets in terms of what the RMDs might look like, but at the end of the day, they're going to have to take the RMD out of that account if that is their money, as well as whatever money they have in their tax deferred accounts.
• 12:44
  Alright, and so what you've got is the total nest egg that you and your spouse have now created for yourselves. It's all under one person's name and that person is a single tax filer. And so those RMDs have to come out in the same dollar amounts, but the tax rate on that can be much higher because of the single tax filing status. So that's called the widow's tax trap. So yes, there are RMD issues while you and your spouse are alive, meaning you're gonna pay more taxes, of course, in those moments if you have really high RMDs, but the bigger issue is if you're not here and you've passed away, and your spouse is the one who now has to take those RMDs as a single tax filer, that's gonna be a huge tax bill for them.
• 13:21
  Additionally, you have to think about income related monthly adjustment amounts. So IRMAA is the acronym there, and what this does is this tells us if you have earned too much money and will be forced to pay a higher premium on your Medicare. So these are surcharges that get applied based on your income. It always is based on what your income was two years previous, but these forced RMDs are going to be taxable income and they're going to show up as such on your tax return, which could force you into higher IRMAA surcharge brackets, and you'd end up doubling or tripling your Medicare premiums because you earned too much money. And finally, traditional IRA assets or any sort of tax deferred asset is the worst thing that you can leave to heirs one day.
• 14:01
  So if you have children or grandchildren or someone that is going to receive this money, who's not a spouse, they are going to have to distribute that money out of the account by the end of the tenth year after you've passed away. So they have to take this money out. Typically, there is an annual distribution that they have to take at a minimum, but they likely want to take more than that depending on how much money they've inherited. But regardless, if they're a high income earner, and they're doing really well for themselves and their family, and they also have start taking a 100 or 200 or $300,000 out of these accounts that have to be taxable, they're gonna pay a really high tax rate on that 30 or more percent depending on what state they live in. And so your inheritance, you've worked so hard for is maybe not taxed while you are alive, but it could be taxed a ton in the future whenever your heirs receive this money.
• 14:46
  So having really large tax deferred account balances is obviously a good thing. You've done something right if you've gotten there, but you have to have a tax plan that accommodates that so that you pay as minimal tax overtime as possible within the guidelines that we have to operate within. And finally, here, you have to think about your state tax considerations. If you're thinking, hey, we live in a high tax environment in our current state, what would it look like in terms of total dollars saved to move to a different state that might be completely income tax free? And that's a consideration you've got to think about.
• 15:15
  Even in high income tax states, sometimes retirement income is not taxed the same. So you've got to evaluate your situation and where you live and see, hey, is it viable to still remain here? Or should we think about moving somewhere else to save a lot of money on taxes throughout retirement? The fifth thing that you've got to have figured out by age 60 is your health insurance situation should you retire before age 65, and that's whenever you would be eligible for Medicare. So many people do not have the opportunity to continue on their current employer health insurance plan outside of COBRA, which would last about eighteen months.
• 15:49
  So you have that opportunity, but those COBRA premiums are often very high. In fact, it's about 102% of whatever your full total premium is today. So if your total premium is $1,000 for you and your spouse every single month, and you are only paying a $100 because your company is covering the other 900, that means you're gonna pay the full thousand plus another 2% on that for your COBRA, once you get there, if you like to go that route. So you've got to understand what your options are when it comes to health insurance, Should you retire before 65? One of those options could be to go find a private health insurance plan through the Affordable Care Act, where you can perhaps qualify for subsidies.
• 16:27
  Again, that's going to be based on your income. So whether or not you want to take the COBRA option and use that for eighteen months, or if you want to go private immediately, you have some different options there. But regardless, you cannot start Medicare until age 65. Now, there's a couple different things to look at. Number one is that whenever you have an HSA or a health savings account, you can use that account type to actually pay for your COBRA premiums while you're on COBRA.
• 16:54
  So you can use your HSA to pay that in a tax free capacity. What you cannot use your HSA for is to pay for private insurance through the Affordable Care Act plans that are available. You can't use your HSA to pay premiums on that. So that's something that's a little bit nuanced, right? You can also still use your HSA for Medicare Part B and D, but you cannot use it for Medigap or Medicare Supplement.
• 17:16
  So your HSA could come in handy there. Now, if you end up not needing or using your HSA at all for medical stuff before you get to Medicare age, your HSA will basically turn into a traditional IRA at age 65, meaning you can take money out of that account for any reason, medical or or non medical expense, and all you have to do is pay the normal income tax like a traditional IRA would. You do not have to pay any additional 10% early distribution or non medical distribution penalties for that. So that's a little advantage for you on the HSA. And one more quick thing here, going back to point number four regarding taxes, is HSAs do not have RMDs while you are alive.
• 17:53
  So they are essentially an IRA, a traditional IRA once you get to that point at 65 or older, but you do not have to take RMDs out of the account while you are alive. So you have to know what your plans are around medical insurance before you get to 65 and Medicare. You also have to think about long term care, and I don't use the word long term care insurance, I just want you to have a long term care plan because insurance sometimes is not the best solution for everyone, and other times it might be. So you've got to evaluate for yourself what is most important for you? How do you need to navigate whether or not you need in home or facility type care in the future?
• 18:26
  How are you going to pay for that? Many people have the opportunity to be self insured, meaning they can cover that cost themselves if they ever arrive in that situation. Others might need insurance to protect themselves because their their wealth won't cover the potential high and rising cost of long term care in the future. So this is different for everyone, but you need to have a plan around it and make sure that you find the right policies that cannot be increased astronomically in premiums year after year after year, and make sure your benefits actually cover enough of what you're trying to pay for, rather than just getting the cheapest policy out there if you do go the insurance route. And the sixth thing you've got to do before you're age 60 is have your estate plan updated or created if you do not have one already.
• 19:09
  This will save your family, your heirs, whoever's behind you, thousands of hours, lots of headache, potentially thousands and thousands of dollars as well, because you are going to dictate how your assets will be transferred and moved to the next generation or whoever is to come after you. So this includes updating your wills, your trust, make sure your beneficiary designations are reviewed and up to date on your different accounts at your your bank accounts, your retirement accounts, your all your insurance policies, everything is set up. Anything that's a retirement account, you want to have your beneficiaries named properly there because your trust or your will doesn't really matter in that scenario. It goes based on who is named as a beneficiary on all retirement accounts, but your bank accounts, you can have a POD or a TOD assigned to that as well as your brokerage accounts and any non retirement assets. You also have to think about your powers of attorney and your healthcare directives and make sure that you have the right people named on those.
• 20:03
  Even if you had them named years ago, you might want to make sure that those are still accurate today or perhaps even change that if changes need to be made. And then finally, want to make sure that your charitable giving if you are charitable is done in the correct way. So you don't want to give high tax assets to a real person, someone in your family and give tax free assets to a charity or something in the future once you pass away, you'd want to do the opposite. So tax planning even comes into play around your giving and your estate and legacy planning. So that's something you've got to figure out.
• 20:34
  I'm telling you, I see nightmares all the time of people not having their estate plans in order, and having their affairs in order and their kids and their grandkids are the ones picking up the pieces, and it takes years and costs lots of money. Assets are frozen, can't be touched, houses can't be sold, all these different things become huge issues, especially whenever these people have lives and they're busy and they're they're doing things, they're at work, you know, they're living their life, and then this is dumped on them and they're having to execute and administer different, obligations around the estate plan. So, make it simple, pay the $3,000 or $4,000 to get a full plan done and make sure it's updated. It's completely worth it and will save your family lots of time. Now all of these different six things I just talked about, here's the bonus one, right?
• 21:17
  The main thing here is you want to by the age of 60, the primary goal is to be work optional. Okay, I want you to have the opportunity to go to work every single day. I don't want you to have to go to work every single day. And what you'll find if you reach that work optional status is that you'll actually enjoy work more and probably work longer. Because whenever our mindset goes from we have to do something to we get to do something, there's a sense of gratitude and just like opportunity and hope that comes into our mind in that moment.
• 21:43
  And so whenever you are work optional, and you have permission to hang it up today, turn in your notice tomorrow and say, I'm done, I don't want to do this anymore. If you have that opportunity, you know that you're free, right? And so you're no longer having to go to work, you're only going to work simply because you want to, whether it's something you enjoy doing, whether you enjoy the people that are there, the actual work you're doing, something that makes you feel fulfilled and purposeful in life. If that's where you're at, it might not be the right thing to retire as soon as you possibly can. You might want to keep doing that, but in the back of your mind, know, hey, I am work optional, and that's the primary goal that you want to achieve by 60.
• 22:17
  Have the option to do what you want to do, work or not, because time, your family, your health, all these different things are not coming back. Meaning, once you spend the opportunities, once you spend time, you don't get to recoup that, but you can always find a way to spend less money or earn more money. So once you reach that work optional stage, that's freedom, that's where you want to be. And that's really what it's about. Try to do that by age 60.
• 22:41
  And make sure you have these other six items taken care of by this point. So hopefully this list was helpful for you as you continue to work towards your retirement goals, and continue to build out a retirement plan that's sustainable for you and your family. Let me know if there's anything I missed here. Shoot me an email and say, Jacob, maybe this would be a good thing to add to that list and talk about at some point. Happy to have a conversation with you there.
• 23:01
  And again, if you are enjoying the show, please share with a friend or give it a rating or review there on the podcast platform that you listen through. Thanks so much for tuning in. We will talk to you again next week. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only.
• 23:24
  Thanks for tuning into this week's episode. I look forward to talking with you again next week.