In reality, though, the 60s are the start of a brand new journey in which retirement planning enters a new and different phase.
The Traditional Retirement Age
While there is no official age of retirement in the U.S., 65 has often been considered the traditional retirement age. Of course, some people choose to retire sooner than this, and some people later, but many people target 65 as the age when they would like to retire if they have the financial resources to do so. This may require accumulating a sizeable retirement nest egg by the time you reach your early 60s.
Depending on the size of your retirement portfolio, it may be advisable in this life stage to start shifting your asset allocation mix to lessen exposure to investments that may be more volatile in the short term (like equities) and increase exposure to those that generally have less volatility, such as fixed-income investments (like bonds) and cash equivalents. "The idea is to manage your savings and investments in a way that will help protect, rather than grow, your income and principal as you prepare to pass from the accumulation to the withdrawal phase of retirement planning," says Martin Walcoe, EVP at David Lerner Associates..
As you look at your retirement account and try to determine if you’ve saved enough money to retire comfortably, remember that you may be eligible to receive Social Security benefits starting in your 60s. And don’t forget to factor in other possible sources of retirement income, such as an employer pension plan and/or cash value from a permanent life insurance policy.
Your Retirement Budget
Your 60s may also be the time to begin planning your retirement budget. One budgeting strategy is to plan on needing between 75-85 percent of your pre-retirement income during retirement. This is based on the assumption that you will no longer need to support children, you may have paid off your home mortgage, and you won’t have employment expenses like clothing, commuting, eating lunch out, etc.
However, these “savings” can easily be offset by unknown variables (such as the future cost of healthcare) and additional unplanned expenses, especially if you plan to live an active retirement lifestyle. If you want to travel extensively, entertain and eat out frequently or participate in expensive hobbies during retirement, be sure to factor these costs into your retirement cost-of-living budget.
Finally, don’t forget to factor the effects of inflation into your retirement budget. Over time, inflation erodes the value of your money and reduces your purchasing power. As a result, a dollar in ten years will likely buy you less than a dollar today. Inflation has risen at an annualized rate of 3.24 percent since 1913, In fact it takes $2.78 today to buy what cost $1.00 in 1980.
In the next article, we will take a detailed look at retirement planning strategies for individuals in their 70s and beyond.