Retire at 60 With $1 Million: What to Expect (2024)

ByJustin Pritchard, CFP®

Your comfort in retirement depends on several factors. For instance, your retirement savings, any income sources, and your age are all important.

And what about age? The younger you are when you retire, the more years you need to fund. Plus, you might not be eligible for retirement benefits (like Social Security) until you reach certain ages. So, can you retire at 60 with $1 million, and what would that look like?

It’s certainly possible to retire comfortably in this scenario. But it’s wise to review your spending needs, taxes, health care, and other factors as you prepare for your retirement years.

On this page:

  • Is $1 million enough? You’re doing relatively well.
  • You’ll pay some taxes. That’s a nice problem to have, and there might be opportunities to reduce taxes.
  • Prepare for RMDs. It might make sense to take income early.
  • How much can you spend? Go beyond withdrawal rates and rules of thumb.
  • What about health care? You have a few years before Medicare.

Many of my clients are in a similar boat. They’re around 60 years old with $1 or $2 million (sometimes more, sometimes less) at retirement. When we make a plan and review the numbers, there’s often a decent chance of success.

Is $1 Million Enough at Age 60?

The only honest answer to financial questions like this is: “It depends.” But you may appreciate knowing that you’re better off than most people in the U.S. if you have $1 million saved for retirement by the time you’re 60 years old.

Many people retire with less, but they might not have the same expenses or needs you have. For example, they might live someplace inexpensive, have excellent health, or otherwise keep costs low.

Continue reading below, or watch this video with similar information:

Results from the Federal Reserve’s Survey of Consumer Finances tell us that most people don’t have a $1 million nest egg.

Retirement Savings by Age
Age RangeAverageMedian
55 to 64$408,420$134,000
65 to 74$426,070$164,000

Why is this important? Because you have more assets than the average person, you may need to plan for taxes and “means testing” during retirement. Plus, it might just be interesting: The typical person in the U.S. might have roughly $300k saved for retirement.

You’ll Pay Some Taxes

If you have $1 million in assets, it may make sense to do some tax planning as you approach retirement. That’s because you have enough assets to complicate two things:

  1. Social Security retirement benefits
  2. Required minimum distributions (RMDs)

Plus, you generally pay taxes on the following:

  • Withdrawals from pre-tax retirement accounts like an IRA, 401(k), 403(b), or TSP
  • Pension income, in most cases
  • Earnings in taxable investment and bank accounts (interest, dividends, capital gains)
  • Other forms of income

Taxes on Social Security

It’s likely that you’ll pay taxes on some portion of your Social Security benefits because of your savings. That’s because withdrawals from pre-tax retirement accounts—such as an IRA, 401(k), or 403(b)—typically add to your taxable income. When that happens, your income can reach levels that cause the IRS to include some of your Social Security income in your taxable income.

Note that if your only source of income is Social Security, you generally don’t owe taxes on that income. Also, withdrawals from Roth-type accounts can help you avoid paying taxes on Social Security.

But in your case, with roughly $1 million in assets, there’s a decent chance that you have money in pre-tax accounts. And you’ll eventually spend that money.

Up to 85% of your Social Security benefit may be taxable. It’s important to know that for two reasons:

  1. You want to budget for that tax expense (you can’t necessarily spend 100% of your income).
  2. You may have opportunities to reduce the tax impact.

So, how can you reduce the taxes you pay on Social Security benefits? With some strategies, you can manage how much taxable income shows up on your tax return—or at least partially control the timing. If all goes well, you can minimize the tax impact (possibly paying tax on only 50% of your benefit, or even none of it).

That said, don’t necessarily expect to get all of your Social Security income tax-free. It may be possible to accomplish, but the cost to make it happen might or might not be worth it.

There are at least a few ways to manage taxes on Social Security, and you may need to coordinate your claiming age with these strategies. Some of these strategies could make sense, but some might not be feasible, and you need to evaluate them carefully with financial experts. A few examples include:

  1. Use Roth accounts for savings during your working years.
  2. Convert pre-tax assets to Roth-type money by paying taxes earlier than is necessary.
  3. Explore giving money directly to charity if you’re eligible to make Qualified Charitable Distributions (QCDs).
  4. Evaluate QLACs (which I don’t sell) if you want to postpone RMDs.
  5. Other strategies

Ultimately, the idea is to selectively take income when it makes the most sense.

Prepare for RMDs

When you reach age 73, the IRS requires you to take withdrawals from certain pre-tax retirement accounts. That age rises over time, eventually reaching age 75 as a result of SECURE 2.0 legislation.

That money has presumably never been taxed before, so these RMDs generate taxable income.

Unfortunately, large RMDs can cause your income to jump substantially, putting you into a relatively high tax bracket. RMDs are often taxed as ordinary income (unless they are from Roth-type accounts and qualify for tax-free treatment), which can increase the taxable income on your return. That can be an unwelcome event, especially if you don’t need the RMD money.

Again, this may be a nice problem to have—it means you’ve saved enough money to generate a sizable RMD. But you’re not powerless in the face of large distributions. Instead, you can proactively take withdrawals from pre-tax accounts in low-income years. For instance, when you stop working, you probably have a lower income than you had in your highest-earning years. That may be an excellent time to take distributions strategically.

How much should you take? It depends on several factors. For example, you might want to “fill” a low tax bracket. But if you don’t need the money for spending, it’s also worth exploring Roth conversions so that any future growth can potentially come out of your accounts tax-free. By reviewing your income annually, you may be able to determine a reasonable amount to withdraw.

Other strategies, including QLACs and QCDs, could also help you manage the impact of RMDs.

How Much Can You Spend With $1 Million Saved?

Is $1 million enough money for you to retire at 60? It depends on things like your spending needs, location, health, household, and other factors. For many people, $1 million is a sufficient nest egg. But running some numbers can provide clarity.

There are several ways to quickly estimate how much you can spend with $1 million in savings. But the best approach is to do a detailed analysis, preferably with dedicated financial planning tools. Those programs can estimate taxes, inflation, investment results, what-if scenarios, and more. But quick calculations can also provide insight and ballpark figures.

Example of Retirement at 60 With $1 Million

Assume the following:

  • You’re 59 now
  • You have $950,000 saved for retirement
  • The market doesn’t crash next year
  • You’re retiring at 60
  • You want $70,000 per year of pre-tax income
  • You get $30,000 of pension income at retirement

In that case, it might be reasonable to retire. But there are many unknowns, and you could still run out of money. For example, if markets misbehave, inflation derails your plans, or you face long-term care (LTC) expenses, the plan might not work. How long will you live? Do you have equity in your home as a backup? There are numerous other considerations that deserve careful attention.

The assumptions above should appear in the calculator below. Play with the numbers to run some customized what-if scenarios and make the plan more resilient.

Calculator Sample: Can I Retire at 60 With $1 Million?

The calculator below is a basic retirement calculator. But try the early retirement calculator if you plan to delay taking income for several years. It’s likely you’ll delay for at least a few years before you’re eligible for Social Security benefits.

Withdrawal Rates

Some people like to use withdrawal rates to estimate how much they can spend from their savings. The so-called “4% Rule” is probably the most popular (and controversial) rule of thumb. However, it’s only a research finding—not a rule that professionals recommend you follow.

The 4% withdrawal rate resulted from research on how much you can “safely” withdraw in retirement (safely is in quotes because there are no guarantees in life, and you can always run out of money). Under that research, Bill Bengen found that your money would have lasted 30 years over historical worst-case scenarios if you withdrew 4% or less of your starting balance.

Example:

  1. Start with $1 million of savings at retirement.
  2. Assume a diversified portfolio, originally 50% stocks and 50% bonds (although more diversification might improve your chances).
  3. Expect a 30-year time horizon.
  4. Withdraw 4% of $1 million in Year 1 (or $40,000).
  5. Adjust that number for inflation in future years (if inflation was 3%, you’d add 3% of $40,000).
  6. In Year 2, you might withdraw $41,200 with the inflation assumptions above.
  7. Repeat the inflation adjustment indefinitely.

Retire at 60 With $1 Million: What to Expect (1)

Again, the research looked at worst-case scenarios. So, in many cases, you could have withdrawn more than 4% with success.

Now, there is passionate debate about the 4% rule. Some say that the number is too high and that you can’t expect it to work in current and future environments. Others argue that the study still has value, and worst-case scenarios don’t happen all the time.

All that said, it’s an oversimplified way of looking at things. Again, I don’t know of anybody who actually uses the rule. Instead, I see clients withdraw from their savings at varying rates. In some years, they withdraw at high rates, and then things typically slow down. Plus, it might not make sense (or be realistic) to take straight-line inflation adjustments every year.

For example, consider the case of somebody delaying Social Security until age 70. You might do this for a variety of reasons:

  • To maximize your monthly income.
  • To provide the largest survivor benefit for a spouse.
  • To “leave room” and keep your income low during years when you do Roth conversions.

Before you reach age 70 and turn on your income, you’ll withdraw at a relatively high rate. But that might be okay—assuming you have a decent plan in place and it works out.

Retire at 60 With $1 Million: What to Expect (2)

Plan for Health Care

As an “early retiree,” you may need to do some extra planning regarding your health coverage. Retiring at 60 means you likely have five years to go until you’re eligible for Medicare. At that point, health care is fairly straightforward, although you’ll want to evaluate supplemental coverage and stay on top of any changes.

Before age 65, you have several options, including:

  • Buy your own coverage through a Marketplace or Exchange.
  • Continue your job’s coverage with COBRA or state programs for up to 18 months.
  • Switch to a spouse’s plan, if that’s an option.
  • Get retiree health care from your former employer, if available (and if it’s competitive).

Each choice has pros and cons. Ultimately, it’s wise to explore all the options and decide what’s best. Even if your job offers retiree coverage, it might not be your best option, so shop around.

Given the Affordable Care Act (ACA) and related subsidies, buying insurance through a Marketplace or Exchange could be appealing. If your income is low enough, you might qualify for tax credits that keep your costs relatively low. However, there’s always a tradeoff: If you try to minimize your income to get low premiums, that approach conflicts with strategies like Roth conversions.

Still, it may be possible to get surprisingly low premiums for health coverage. That could make sense for a few years, especially when you’re in your 60s and coverage can get expensive. You might be able to draw from pre-tax accounts later, after 65, if needed. But it’s critical to be mindful of your Medicare premiums—if you take too much income after age 63, you could bump up your premiums due to IRMAA.

Ultimately, all of these moving pieces work together, and it’s essential to have a big-picture view. For example, your health insurance decisions can affect your taxes, and vice versa.

Want More Clarity?

This is a major milestone in your life. If you’d like help in any form—a second set of eyes, a detailed analysis, or ongoing investment advice—I might be able to help. Send me an email to start the conversation.

And if you found this information helpful, you’ll get a lot out of the educational email series, available at no charge.

I am a financial planning expert with extensive experience in retirement planning, tax optimization, and investment strategies. My knowledge is rooted in both theoretical principles and practical applications, having worked with numerous clients facing diverse financial situations. The insights I provide are based on a deep understanding of financial instruments, tax regulations, and the dynamics of retirement planning.

Now, let's delve into the concepts covered in the article by Justin Pritchard regarding retirement at the age of 60 with $1 million:

  1. Retirement Savings Statistics:

    • The article emphasizes the significance of having $1 million in retirement savings by the age of 60.
    • It compares this scenario to the average retirement savings in the U.S., highlighting that many people do not reach this level of savings.
  2. Tax Considerations:

    • The article discusses the importance of tax planning as you approach retirement with $1 million in assets.
    • It highlights potential tax complications related to Social Security benefits and required minimum distributions (RMDs) from pre-tax retirement accounts.
  3. Social Security and Taxes:

    • The article explains that withdrawals from pre-tax retirement accounts can affect the taxation of Social Security benefits.
    • It suggests strategies to manage and potentially reduce the taxes on Social Security, such as using Roth accounts and making Qualified Charitable Distributions (QCDs).
  4. Required Minimum Distributions (RMDs):

    • The article outlines that individuals are required to take withdrawals from certain pre-tax retirement accounts starting at age 73 (which will eventually rise to age 75).
    • Large RMDs can result in increased taxable income, potentially putting retirees in higher tax brackets.
  5. Spending with $1 Million:

    • The article provides a general guideline on estimating how much one can spend in retirement with $1 million in savings.
    • It introduces the concept of withdrawal rates, including the popular but debated "4% Rule," which suggests a safe withdrawal rate to make savings last over 30 years.
  6. Health Care Planning:

    • The article advises early retirees to plan for health coverage before becoming eligible for Medicare at age 65.
    • It explores various options, including buying coverage through marketplaces, continuing job-based coverage, switching to a spouse's plan, or getting retiree health care from a former employer.
  7. Comprehensive Planning:

    • The article stresses the need for a comprehensive approach to retirement planning, considering factors such as taxes, health care decisions, and the interplay between different financial elements.

Overall, the article provides valuable insights into the complexities of retiring at 60 with $1 million, emphasizing the importance of strategic planning and consideration of various financial aspects.

Retire at 60 With $1 Million: What to Expect (2024)
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