For many Americans, retirement can be daunting. Not only do you face a major lifestyle change, but the financial aspect can be hard to manage. In fact, 55% of Americans worry they will not have financial security in retirement, according to a National Institute of Retirement Security survey.
But what if you could put together a plan so that you not only can retire comfortably, but you can even do so a few years at age 60, before most people retire?
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Studies vary, but one from the Center for Retirement Research at Boston College finds men retire on average at age 64.6, while women do so at age 62.6. Social Security also can not be claimed until 62 at the earliest and full retirement benefits don’t start until age 67 for those born in 1960 or later.
Consider the below main areas if you want to set yourself up for a slightly early retirement that can enable you to live comfortably.
According to a Chinese proverb, the best time to plant a tree was 20 years ago and the second best time is now. The same idea applies if you’re planning to retire at age 60, in the sense that starting from a young age is ideally best, but since you can’t go back in time, the next best thing is to start planning right away.
“When it comes to planning for the future and retirement the short answer is the sooner, the better. The earlier you begin saving and investing, the more time your money has to grow and the less you need to save to hit your goals. When you have time and compound interest on your side it can be very powerful,” said Amber Schiffert, co-founder of Tara Wealth.
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That said, sometimes saving more later in life is more realistic, particularly as you advance in your career and earn more.
Many people’s greatest financial achievements don’t occur in their 20s and 30s. “So there is hope if you are in your 40s or even early 50s. Just realize the later you wait you are going to need a higher savings rate and/or look at decreasing your spending,” said Chad Gammon, certified financial planner (CFP) and owner at Custom Fit Financial.
Another key aspect to retiring comfortably at age 60 is figuring out how much you realistically need to cover your monthly spending so that you can save and invest accordingly. It’s one thing to start early, but if you’re not moving toward a particular goal, then you might not end up where you want to be.
“For example, if you want to retire in San Diego — where I’m located and many of our clients are — and you want to live a comfortable lifestyle you might need $120,000 a year, after taxes or $10,000 per month,” Schiffert said.
From there, you can do some calculations, starting with estimating your Social Security income. If you assume you’ll receive $4,000 per month from Social Security, that means you would need a retirement savings balance of $1.8 million to be able to stick to the relatively safe 4% withdrawal rule and take out $6,000 per month, Schiffert explained.
Granted, this does not account for taxes, so you’ll likely need more, but will have to calculate that based on factors such as where you live and if you have a Roth or traditional retirement account.
Then, you can calculate what it would take to save $1.8 million (or whatever number applies to your situation) by using a compound interest or similar retirement calculator to determine how much you need to invest per month based on your age and expected average annual return.
For example, if you’re 30, you would roughly need to save almost $1,900 per month to reach $1.8 million by age 60 if earning a 6% annual return, but if you’re 20, you could save less than $1,000 per month and still hit that mark, as Schiffert pointed out. This shows the power of starting early.
If you’re closer to age 60, you might not have the benefit of much time for compounding, so instead you might try to save tens of thousands of dollars per year if you have that luxury. That could mean saving and investing across both retirement and non-retirement accounts, while cutting back in other areas of spending, so you can reach your goal.
“To retire at 60, many of the clients I see have maximized contributions to their retirement accounts and start saving in their brokerage accounts. They also typically know their spending very well and can control costs outside of their fixed costs,” Gammon said.
Lastly, retiring at age 60 means you’re retiring before you can claim Social Security and Medicare benefits. So, you’ll likely want to figure out ahead of time how you’ll navigate the gap.
“The retirees at age 60 are typically not looking to take Social Security at the earliest age of 62. They are waiting at least until their full retirement age and many are delaying to the maximum age of 70” so they can ultimately claim higher benefit amounts, Gammon said. “The main area they need help around is with health care coverage until they get to age 65.”
That comes back to knowing your numbers. While it’s hard to say for sure how much you’ll spend on healthcare, you could consider averages, such as Bureau of Labor Statistics data showing the average person ages 55 to 64 spends around $6,700 per year on healthcare. So, factoring that into your spending can help you save enough to retire comfortably at age 60.
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This article originally appeared on GOBankingRates.com: What If You Had a Plan To Retire Comfortably by Age 60?
