The average retirement age in the United States depends on who you ask. For most people, Social Security defines full retirement age as 67 years old, while Medicare uses 65 as its age of eligibility. But whatever metric you use to define retirement age, it’s fair to say that age 60 is slightly sooner than the average person leaves the workforce for good and relies on their investments for living expenses.
I’m in my early 40s right now and aim to be fully ready to retire by the time I reach 60. I plan to get there by sticking to three important strategies for the next 18 years. Here’s what they are.
Strategy 1: Build my retirement nest egg
The first step in my plan to be ready to retire at 60 is perhaps the most obvious — to build up my savings as much as possible.
I’m not the most frugal person in the world, but I’ve prioritized retirement savings since my mid-20s. As a primarily self-employed person, I use a SEP IRA account to save for retirement on a tax-advantaged basis and contribute as much to my account as I can. Depending on your circumstances, a traditional or Roth IRA, a 401(k), 403(b), or some combination of accounts could be the best bet.
The point is to utilize tax-advantaged retirement accounts and to construct a portfolio of investments appropriate for your financial goals and risk tolerance. If that sounds like too much, there are automated investing services, or robo-advisors, that can do it for you.
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Strategy 2: Eliminate all debt
Here’s one important concept about retirement that you should know. It isn’t necessarily about how much money you’ve saved — it’s about whether you can create enough income after you retire to cover your expenses.
We’ve addressed one side of that. The more I have saved for retirement, the more sustainable income I can create. Since I won’t be eligible for Social Security yet if I retire at 60, I’m ignoring that in this discussion.
The other side of the equation is to lower your post-retirement expenses as much as possible. To do that, I’m planning to have zero debt by the time I’m 60. I don’t just mean things like credit cards and auto loans, which are a good idea to get rid of well before you turn 60. I plan on strategically paying off my mortgage — whether I’m living at my current home or not — before I reach that age.
Think about it this way. Whatever income stream I can create from my investments will go a lot longer if I’m not paying a mortgage every month.
Strategy 3: Set a budget and stick to it
Although a budget can be an excellent tool in many circumstances, I’m not the biggest advocate for budgets in the CFP® community and don’t have a set-in-stone budget myself. My main financial strategy is to aggressively save money before doing anything else. I prioritize the things I have to pay and then have some freedom with what is left.
However, that will likely change when I’m retired. Even if I’m successful with saving and investing, my income will likely be lower after I retire than it is now. This is quite common, and most retirement planners say you’ll need 80%-85% of your pre-retirement income to maintain the same lifestyle. However, I do plan to stick to more of a budget after I retire to be sure that the money I saved will last as long as I need it to.
Will I really be ready?
To be perfectly clear, I’m not necessarily saying that I will retire at age 60, or at any particular age. In fact, if I enjoy what I’m doing as much as I do now, I don’t see myself completely walking away from it. And numerous studies have shown that keeping engaged with something that is intellectually challenging can be great for mental health as you get older.
Rather, my goal is to be able to retire at 60 if I want to. My wife and I have big ambitions to travel the world and live by the beach, and we want to be able to do those things while we’re still young enough to fully enjoy them. And I’m confident that if I stick to these three strategies, I’ll be financially comfortable enough to work because I want to, not because I have to.
