How to Retire at 60

Begin with lifestyle, then income, then assets. Know what your life costs today and what it will cost when work expenses disappear and travel or health care rise. Subtract every income source that does not require selling investments: pension, rental income, consulting, business income, and later Social Security. The remaining gap, divided by a sensible withdrawal rate, tells you the portfolio you need.

Access is mostly solved. After 59½, IRA and 401(k) withdrawals carry no 10% penalty, so a 72(t) plan or the Rule of 55 is rarely needed at 60. That frees you to choose which account to draw from each year based on taxes. A taxable brokerage account, pre-tax accounts and Roth accounts each have a role, and the order you use them can shift tens of thousands of dollars of lifetime tax.

Income sources tend to come into focus at 60. Many employer pensions start between 60 and 65, and choosing between a lump sum and a lifetime annuity, and between single life and joint and survivor payouts, is one of the largest decisions you will make. Rental income can carry part of the lifestyle if you are comfortable managing it. Part-time consulting or a business can fill the years before Social Security. Social Security itself can start at 62 at a 30% reduction, at 67 at full benefit for anyone born in 1960 or later, or at 70 with a 24% increase.

The mortgage question is still worth answering before you retire. Eliminating a $2,500 monthly payment removes $30,000 a year of spending, which at a 3.5% to 4% withdrawal rate is about $750,000 to $860,000 of assets you no longer need. Paying it off with a large pre-tax withdrawal in one year, though, can push you into a higher bracket and over the ACA subsidy line, so spread or time the payoff.

Withdrawal rates can be a little higher than at 50 or 55 because the horizon is shorter, but not by as much as people think. As a planning range, Singh PWM uses about 3.5% to 4% in the early 60s, moving toward 4% to 4.5% once Social Security and Medicare are in place and 4.5% to 5% or more in the 70s. These ranges are illustrative and assume flexibility in down markets.

Consider a couple who want $140,000 a year starting at 60, home paid off. One spouse has a $40,000 pension starting at 60. The higher earner plans to claim Social Security at 67 for about $3,800 a month, and the spouse at 67 for about $1,900, a combined $68,400 a year. From 60 to 67, the gap is $100,000, which at 3.5% to 4% implies about $2.5M to $2.9M. From 67 on, the gap drops to about $31,600 and the withdrawal rate falls sharply. The early years are the expensive ones, so many couples hold a separate bridge fund of cash and bonds for 60 to 67.

The ideal is to have pension, rental or consulting income cover most of the lifestyle in your early 60s so the portfolio is only drawn for the gap and one-off costs. If the portfolio is large relative to spending, a 3.5% to 4% draw can carry more, but the less you sell in the first five years, the less a bad market at the start of retirement can hurt you.

Use the years between 60 and Social Security for tax planning. With no paycheck, your income can be very low, which makes room for Roth conversions or capital gains at low rates, but you are also on ACA coverage until 65, where the subsidy disappears above about $84,600 of income for two people for 2026 coverage, and from 63 on, income sets Medicare premiums two years later. Pick a target income for each year, not a fixed withdrawal.

• Treating a pension election as paperwork, when the survivor option and lump sum choice can be worth hundreds of thousands of dollars to a spouse.
• Claiming Social Security at 62 by default instead of comparing it with a bridge from savings to 67 or 70.
• Pulling the whole gap from a pre-tax IRA each year without considering taxable account sales and Roth money.
• Wasting the low-income years before Social Security without Roth conversions or gain harvesting.
• Paying off a mortgage with one large pre-tax withdrawal and losing the ACA subsidy that year.
• Forgetting that income at 63 sets Medicare premiums at 65.