Can You Afford to Retire at Age 60?

By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group

Retiring at age 60 sounds pretty good.

You have reached a point where you may have accumulated significant savings in your 401(k), IRA, brokerage accounts, and other investments. Your mortgage may be paid down or close to being paid off. The kids may be out of the house. After working for several decades, you may finally be ready to spend more time traveling, pursuing hobbies, visiting family, or simply enjoying a schedule that isn't dictated by work.

But can you actually afford to retire at age 60?

The answer is going to be different for every household. Retiring at 60 can absolutely be achievable, but retiring before age 65 typically requires some additional planning. One of the biggest reasons is healthcare. Most people do not become eligible for Medicare based solely on age until 65, which potentially leaves a five-year period during which you need another source of health insurance.

At the same time, Social Security retirement benefits cannot generally begin until age 62, and claiming at 62 permanently reduces your monthly benefit compared with waiting until your full retirement age. For people born in 1960 or later, full retirement age is 67.

This creates what we might call the age-60 retirement bridge.

If you retire at 60, you need a plan for getting from age 60 to Medicare at 65, a strategy for when to begin Social Security, and enough income and investments to support your lifestyle potentially for several decades.

When evaluating whether you can afford to retire at 60, some of the most important questions include:

• How will you obtain health insurance between age 60 and Medicare eligibility?

• What will your annual after-tax expenses be?

• How will inflation impact those expenses over a potentially long retirement?

• When should you claim Social Security?

• What pensions, part-time income, or other income sources will you have?

• How much will you need to withdraw from your retirement accounts?

• How will taxes impact the amount you actually have available to spend?

Let's walk through each of these areas.

Healthcare May Be the Biggest Challenge When Retiring at 60

For many people who want to retire at age 60, healthcare is one of the first issues we address in the financial plan.

Medicare generally becomes available at age 65 for people who qualify based on age. That means someone retiring at 60 could potentially have approximately five years in which they need another source of health insurance.

Those five years matter.

If health insurance costs $1,000 or more per month, that expense can significantly change the amount you need to withdraw from your retirement accounts. It can also affect your tax planning because the income you recognize during those years may influence the financial assistance available for certain Marketplace plans.  Fortunately, there are several potential health insurance options for early retirees.

Option #1: Health Insurance Through Your Spouse's Employer

One of the simplest situations occurs when one spouse retires at 60 while the other spouse continues working.  The retiring spouse may be able to obtain health insurance through the working spouse's employer-sponsored plan. Losing other health coverage can provide a special enrollment opportunity for an employer's group health plan, subject to applicable enrollment rules and deadlines.

However, don't assume the cost will be the same as what the working spouse is currently paying.

An employer might heavily subsidize coverage for its employees but provide a smaller subsidy for spouses or other dependents. Adding a spouse could therefore increase the monthly premium substantially.  Before submitting your retirement paperwork, ask the working spouse's employer for the actual cost of family or employee-plus-spouse coverage. Also review deductibles, copays, provider networks, prescription coverage, and out-of-pocket maximums.

If adding the retiring spouse costs an additional $800 per month, for example, that represents $9,600 of additional annual expenses that should be included in the retirement plan.

Option #2: Retiree Health Insurance Through Your Former Employer

For someone retiring before 65, employer-sponsored retiree health coverage can be extremely valuable.

Although not every employer offers it, some organizations provide healthcare benefits to eligible retirees after they leave employment. Depending on the plan, coverage might continue until the retiree becomes eligible for Medicare, or benefits could continue in some form beyond age 65.

The important point is that retiree health plans vary significantly.  One employer may subsidize most of the premium. Another may require retirees to pay a significant portion of the cost. Plans can also differ in deductibles, networks, prescription coverage, dependent coverage, and what happens once the retiree becomes eligible for Medicare.

If retiree health insurance is available to you, request the plan documents before you select a retirement date.  You want to know exactly what you will pay, how premiums can change, whether your spouse is covered, and what happens at age 65. Those numbers should then be incorporated directly into your retirement projections.

Option #3: COBRA Coverage

COBRA can provide another potential bridge for someone leaving an employer before becoming eligible for Medicare.  Under federal COBRA rules, eligible employees who retire or otherwise leave employment can generally continue their employer-sponsored health insurance for up to 18 months following the qualifying event. Certain circumstances can result in longer continuation periods.

The advantage is continuity. You can generally keep the same coverage you had immediately before leaving the employer.  The disadvantage can be the cost.

While you were working, your employer may have been paying a significant portion of your health insurance premium without you really thinking about it. With COBRA, you generally become responsible for the full premium—the employee portion and the portion previously paid by your employer—plus a potential 2% administrative fee.  That can make COBRA surprisingly expensive.

However, COBRA may still be a useful planning tool for someone retiring closer to age 65.

For example, someone retiring at age 63½ may be able to use COBRA to help bridge much or all of the period until Medicare eligibility. Someone retiring at exactly 60, on the other hand, generally cannot rely on the standard 18-month COBRA period to cover the entire five-year gap.  That individual will likely need another healthcare solution after COBRA ends.

Option #4: Health Insurance Through the Marketplace

If you retire at 60 and don't have access to a spouse's employer plan or retiree health insurance—and COBRA isn't appropriate for the entire period—you may need to purchase individual health insurance through the Health Insurance Marketplace or an applicable state marketplace.

This is where retirement planning and tax planning can become closely connected.  Marketplace premium tax credits can reduce the cost of coverage for qualifying households, and eligibility and the amount of the credit depend in part on household information and estimated income.

That means your retirement income strategy could potentially influence your health insurance costs.

For example, imagine you retire at 60 with substantial balances in a traditional IRA and a taxable brokerage account. The amount and type of income you recognize during the year could affect your eligibility for Marketplace financial assistance.  This is one reason we don't look at healthcare planning, tax planning, and investment withdrawal strategies as three completely separate decisions. For an early retiree, they can interact with one another.

Depending on your location, age, household, income, and plan selection, unsubsidized Marketplace premiums can also be substantial. Instead of estimating the cost, research the plans available to you and incorporate realistic premiums, deductibles, and potential out-of-pocket costs into your financial plan.

Don't Just Budget for the Health Insurance Premium

Another mistake is looking only at the monthly premium.  Your actual healthcare budget may include premiums, deductibles, copays, prescription expenses, dental care, vision care, and other out-of-pocket medical costs.  Suppose you estimate that your health insurance premium will cost $12,000 per year. If you build your retirement projection using only that number, you may be understating your actual healthcare spending.

This is particularly important for someone retiring at age 60 because healthcare expenses don't disappear once Medicare begins at 65. The structure of the costs changes, but Medicare itself does not necessarily mean healthcare becomes free.

A good retirement projection should therefore model healthcare expenses both before and after age 65.

How Much Will You Spend If You Retire at 60?

Once healthcare is addressed, the next step is building a detailed retirement budget.  We generally want to go line by line.  That means looking at property taxes, mortgage payments, homeowners insurance, utilities, groceries, car payments, auto insurance, home maintenance, travel, entertainment, gifts, subscriptions, healthcare, and other recurring expenses.

This can be particularly important for someone retiring at 60 because some expenses that might disappear later in retirement may still exist.  You might still have a mortgage. You could still be financially helping children. You may be replacing vehicles. Perhaps you plan to travel extensively during the first decade of retirement because you finally have the time to do it.

Rather than assuming you will spend 70% or 80% of your pre-retirement income, build the budget around the life you actually expect to live. 

Inflation Has an Even Bigger Impact When You Retire Early

If you retire at 60, your retirement could potentially last 30 years or longer. That makes inflation an important variable.

For illustration, assume your household needs $80,000 per year after taxes at age 60 and we use a 3% annual inflation assumption.

Ten years later, you would need approximately $107,500 per year to maintain the purchasing power of that original $80,000.

Twenty years later, at age 80, you would need approximately $144,500 per year.  That doesn't necessarily mean your lifestyle became more expensive. It means that, using our hypothetical 3% assumption, the same goods and services gradually cost more.  Of course, inflation doesn't increase by exactly 3% every year. Some years it will be higher and some years lower. We are simply using 3% as a long-term financial planning assumption to illustrate how purchasing power can change.

The earlier you retire, the more years inflation potentially has to impact your expenses.

Social Security Creates Another Gap at Age 60

Another important consideration is that Social Security retirement benefits generally cannot begin at age 60.  The earliest age most individuals can begin Social Security retirement benefits is 62. However, filing at 62 means accepting a permanently reduced monthly benefit compared with waiting until full retirement age. For individuals born in 1960 or later, claiming at 62 can reduce the monthly retirement benefit by as much as 30% compared with the benefit available at full retirement age of 67.

This creates another planning decision.  If you retire at 60, should you begin Social Security immediately at 62?  Or should you use your retirement assets to fund your lifestyle for a few additional years and allow your Social Security benefit to grow?

There isn't one answer that works for everyone.

Your health, life expectancy, marital status, other income sources, investment assets, taxes, and overall retirement strategy can all factor into the decision.  The important point is that your retirement date and your Social Security filing date do not have to be the same.  You can retire at 60 and potentially wait until 62, 67, or later to begin Social Security. Your financial plan should model those different scenarios so you can understand the tradeoffs.

Retiring at 60 Could Also Affect Your Social Security Benefit

There is another Social Security consideration that can be easy to overlook.

Social Security retirement benefits are calculated using your highest 35 years of earnings. If you stop working at 60 and have fewer than 35 years of earnings, years with no earnings can reduce your benefit calculation. Even if you already have 35 years of earnings, continuing to work could potentially replace lower-earning years with higher-earning years.

For many people with long careers, this may not dramatically change the retirement decision. But it is worth checking your individual Social Security earnings record and projected benefit before selecting a retirement date.

Identify All of Your Income Sources

Once we know what you expect to spend, we can begin identifying the income available to pay those expenses. 

• If you have a pension, when does it begin?

• Can it begin at 60, or is there a reduction for starting it early?

• Does the pension have a cost-of-living adjustment?

• When will Social Security begin?

• Do you expect rental income or income from another source?

• Do you plan to work part-time?

Part-time work can be particularly helpful for someone retiring at 60. You may be finished with your primary career but still enjoy consulting, teaching, seasonal employment, or another flexible job. If you earn $20,000 or $30,000 per year for the first five years of retirement, that is money you potentially don't have to withdraw from your investments.

That can reduce pressure on the portfolio during the early years of retirement.

Your Investments Have to Cover Whatever Your Other Income Doesn't

Once your annual expenses and recurring income sources have been identified, we can determine how much needs to come from your assets.

Those assets could include:

• 401(k) and 403(b) accounts

• 457 plans

• Traditional IRAs

• Roth IRAs

• Taxable brokerage accounts

• Cash and savings

• Other investment assets

Imagine that you need $100,000 of gross annual income to support your spending and taxes. 

Perhaps a pension provides $30,000 and part-time work provides another $20,000.

That leaves approximately $50,000 that needs to come from your investment portfolio.

When the part-time work eventually ends, the amount required from the portfolio may increase. When Social Security eventually begins, the amount required from the portfolio may decrease again.  This illustrates why early-retirement planning isn't as simple as dividing your investment balance by your annual expenses.

Your income needs can change significantly from year to year.  A detailed financial plan can map those changes across the different phases of retirement.

Don't Forget About Taxes When Retiring at 60

Taxes are another major consideration.

Let's say you expect to spend $70,000 per year in retirement.

That is generally $70,000 after taxes because your mortgage company, grocery store, utility company, and airline don't care what your gross income was. They care whether you have enough cash available to pay the bill.  If much of your retirement money is held in traditional 401(k)s and IRAs, withdrawals generally create taxable income.  Pension income can also be taxable, and depending on your overall income, a portion of your Social Security benefits may eventually be subject to federal income tax.

As a result, you might need $80,000, $85,000, or some other amount of gross income to produce $70,000 of after-tax cash flow. The actual number depends on your individual tax situation.  State taxes matter as well.

Different states have different rules regarding pension income, Social Security, and distributions from retirement accounts. If you are planning to move after retirement, the tax rules in your future state of residence may also need to be considered.

The Years Between 60 and 65 Can Create Tax-Planning Opportunities

There can also be opportunities associated with retiring early.  For some retirees, the years immediately following retirement represent a period in which taxable income is lower than it was during their working years.

You might have stopped receiving a salary but have not yet begun Social Security. Required distributions from certain retirement accounts may also be years away.  Depending on your circumstances, that period could create opportunities to evaluate strategies such as Roth conversions or realizing income at potentially lower tax rates.

However, those decisions should not be made in isolation.

For example, increasing taxable income through a Roth conversion could potentially affect Marketplace health insurance subsidies. A strategy that looks attractive strictly from an income-tax perspective could have a different result once healthcare costs are considered.  This is another reason comprehensive planning can be particularly valuable between ages 60 and 65.

Can Your Portfolio Survive a Long Retirement?

Someone retiring at 60 also needs to consider longevity.  If you retire at 60 and live to age 90, your investments need to support a 30-year retirement.

Live to 95, and you're looking at 35 years.

That doesn't mean you shouldn't retire early. It means the plan should be stress-tested over a sufficiently long period. It is also important to consider what happens if investment markets decline shortly after you retire. Taking large withdrawals while the portfolio is temporarily down can create additional challenges because you may have to sell more investments to generate the same amount of cash.  A retirement plan should therefore evaluate not only whether the numbers work under an average set of assumptions, but also what happens when conditions aren't ideal.

A Hypothetical Age-60 Retirement Example

Consider a married couple, John and Lisa, who are both age 60. 

They estimate that they need $80,000 per year after taxes to support their desired lifestyle. Lisa plans to continue working until age 65, while John would like to retire now.

John can join Lisa's employer health insurance plan, but doing so will increase their premiums by $9,000 per year. 

John has a pension available immediately, and Lisa will eventually receive Social Security. They also have 401(k)s, IRAs, Roth IRAs, and a brokerage account.

Instead of simply asking whether their investment balance is “enough,” we would want to map out their cash flow year by year.

From 60 to 62, their income sources may look one way.

At 62, Social Security becomes available, although they may decide not to claim it yet.

At 65, Medicare changes the healthcare equation.

At 67, they reach full retirement age for Social Security if they were born in 1960 or later.

Later in retirement, additional tax and retirement-account considerations may arise.

The financial picture changes repeatedly.  That is why a detailed retirement projection can provide far more useful information than a generic rule saying you need $1 million, $2 million, or some other arbitrary amount to retire at 60.

So, Can You Afford to Retire at Age 60?

You may be able to.  Retiring at 60 can be a great option for individuals who have accumulated sufficient assets and have a clear plan for the additional variables that come with early retirement.  The biggest hurdle is often healthcare coverage between retirement and Medicare eligibility at 65. But that is only one part of the analysis.

You also need to understand your annual expenses, account for inflation, determine your Social Security filing strategy, identify pensions and other income sources, estimate how much needs to be withdrawn from your investments, and account for federal and state taxes.

Retiring five or seven years earlier than the traditional retirement age gives you more years to enjoy retirement—but it also means your assets may need to support you for more years.  The goal of financial planning isn't necessarily to determine whether you can retire at 60 based on one investment balance.

The better question is whether your combination of income, investments, healthcare coverage, taxes, and Social Security strategy can sustainably support the lifestyle you want throughout retirement.  If the answer is yes, retiring at age 60 may be a very viable option.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions About Retiring at Age 60

1. Can I afford to retire at age 60?
   Whether you can afford to retire at 60 depends on your annual expenses, retirement savings, healthcare costs, pensions, Social Security strategy, taxes, and other income sources. Because Medicare generally does not begin based on age until 65 and Social Security retirement benefits generally cannot begin until 62, someone retiring at 60 needs a plan to bridge those gaps. A detailed retirement projection can help determine whether your assets are sufficient to support your desired lifestyle over a potentially 30-year or longer retirement.
2. How much money do I need to retire at 60?
   There is no single amount you need to retire at 60. Someone with a pension, low expenses, and retiree health insurance may need substantially less than someone with no pension, high expenses, and expensive private health insurance. Instead of targeting an arbitrary amount such as $1 million or $2 million, calculate the difference between your expected after-tax spending and the recurring income available to support it.
3. How can I get health insurance if I retire at 60?
   Potential health insurance options for someone retiring at 60 include coverage through a working spouse's employer, retiree health insurance from a former employer, COBRA continuation coverage, and individual coverage through the Health Insurance Marketplace or an applicable state marketplace. Costs and coverage vary substantially, so healthcare should be researched before selecting your retirement date.
4. Can I use COBRA until Medicare starts at 65?
   It depends on your age when you retire and your eligibility. Following termination or retirement, federal COBRA continuation coverage is generally available for up to 18 months, although certain circumstances can extend coverage. Someone retiring at 63 1/2 might potentially use an 18-month COBRA period to bridge much of the gap to Medicare, while someone retiring at 60 would generally need another solution before reaching 65.
5. Can I collect Social Security if I retire at age 60?
   Retiring from your job and claiming Social Security are two separate decisions. Social Security retirement benefits generally cannot begin until age 62. You can retire at 60 and use pensions, savings, investments, or other income for several years before beginning Social Security. Waiting beyond age 62 can result in a larger monthly benefit than claiming at the earliest possible age.
6. Should I take Social Security at 62 if I retire at 60?
   Not necessarily. Claiming at 62 provides income sooner, but your monthly benefit is permanently reduced compared with waiting until full retirement age. For people born in 1960 or later, claiming at 62 can result in a benefit up to 30% lower than the full-retirement-age amount. Your life expectancy, marital situation, investments, tax situation, and other income sources should be considered when evaluating your Social Security filing strategy.
7. How much does health insurance cost if I retire before 65?
   The cost can vary significantly based on the type of coverage, location, age, household size, income, plan selection, and whether an employer subsidizes any portion of the premium. Early retirees should consider not only premiums but also deductibles, copays, prescriptions, and maximum out-of-pocket costs. If using Marketplace insurance, household income can also affect eligibility for premium tax credits.
8. What expenses should I include when planning to retire at 60?
   Your retirement budget should include housing, property taxes, mortgage payments, utilities, food, transportation, insurance, healthcare, travel, entertainment, home repairs, vehicle replacement, gifts, and other recurring or periodic expenses. Because someone retiring at 60 may still have a mortgage or other costs that disappear later, it is helpful to build a year-by-year projection rather than assuming expenses remain unchanged throughout retirement.
9. What are the biggest risks of retiring at 60?
   Important financial risks include unexpectedly high healthcare costs, inflation, a longer-than-expected lifespan, poor investment returns early in retirement, higher spending, and withdrawing too much from investments during the first several years. Retiring at 60 also means your portfolio may need to support you longer than if you retired at 65 or 67. Modeling different scenarios can help determine how resilient your retirement plan may be.
10. What should I do before retiring at age 60?
    Before retiring at 60, build a detailed after-tax retirement budget, determine your health insurance strategy through age 65, review your Social Security options, identify pensions and other income sources, estimate taxes, and determine how much you will need to withdraw from your investments each year. It can also be helpful to test the plan under different assumptions for inflation, investment returns, healthcare costs, and longevity. The objective is to determine whether your entire financial picture-not simply your current retirement account balance-can support the lifestyle you want for the rest of retirement.