According to the analysis of data from the US Census Bureau by the Center for Retirement Research at Boston College, the average retirement age in the United States is approximately between 63 and 65 years old.
In fact, your 60s are a crucial stage in your retirement planning. Unfortunately, many people who have worked hard and saved assets for decades make serious mistakes when they reach this stage.
Let’s take a look at some practices you should avoid.
You have been working hard all your life and paying Social Security taxes. Starting at age 62, you can begin applying to receive Social Security benefits.
You might think that reaching the milestone age to collect your entitled benefits is finally here. However, the actual amount you receive may be far less than you imagine.
Why is this the case?
Your Social Security benefits are mainly calculated based on the income you earned and paid Social Security taxes on during your working years. If you start collecting benefits before reaching Full Retirement Age (FRA), the actual amount you receive will be lower than the full benefits calculated based on your lifetime earnings.
The Full Retirement Age varies depending on your birth date, but for most current workers, it’s 67 years old. Applying at FRA allows you to receive full benefits.
However, if you choose to delay receiving benefits, the future amount may further increase.
If you continue to delay taking benefits after reaching FRA, for each year you delay, the benefits may increase by about 8%, up until age 70. However, this increase applies only up to that age. Delaying benefits beyond age 70 won’t further increase your Social Security benefits.
Of course, delaying Social Security benefits may not be feasible for everyone.
If you have other sources of income, you may consider relying on those to sustain yourself and let your future Social Security benefits increase with delayed withdrawal.
If you retire in your 60s and haven’t started receiving Social Security benefits yet, you might encounter what financial experts refer to as the “Income Valley.”
This period, also known as the “income gap,” is the time between retirement and when Required Minimum Distributions (RMD) take effect.
For those born between 1951 and 1959, RMD kicks in at 73; for those born in 1960 or later, it’s 75.
Whichever the case, this time frame may offer various advantageous tax planning opportunities to help you more effectively utilize your retirement savings.
One of these opportunities is Roth Conversion.
This involves transferring funds from a traditional IRA to a Roth IRA.
You’ll need to pay income tax on the amount converted in the same year, but during your Income Valley, the tax impact may be minimal or even zero.
Since you can decide on the conversion amount, you can strategically fill lower tax rate brackets through this conversion.
While this is a tax-efficient strategy, it can be complex to execute. It’s advisable to consult qualified financial advisors and tax professionals before proceeding with a Roth Conversion.
You may have diligently saved in tax-deferred accounts like traditional 401(k)s or IRAs for many years.
Every dollar withdrawn from these accounts is taxed at ordinary income rates, which can go as high as 37%.
Therefore, if you need living expenses early in retirement, consider tapping into other income sources first to allow funds in pre-tax 401(k) or traditional IRA accounts more time to grow.
For instance, if you hold taxable securities in an investment account, selling appreciated assets would trigger capital gains tax. Holding these assets for over a year may qualify you for more favorable long-term capital gains tax rates of 0%, 15%, and 20%.
Doing this in lower-income years can be advantageous. In fact, as a single filer, you can have up to $49,450 in long-term capital gains tax-free after deductions.
However, this doesn’t mean you should neglect funds in pre-tax IRAs or 401(k)s entirely.
When you turn 73 or 75, you must start taking RMDs. This amount is calculated based on your account balances and life expectancy factors from the IRS. If the RMD is substantial, it could increase taxable income, pushing you into higher tax brackets or even into the dreaded “tax torpedo” situation.
Remember, even if you don’t need the money, you must adhere to RMD rules. Failure to take RMDs as required may lead to tax penalties.
In your 60s, your financial focus may need to shift from actively accumulating wealth to safeguarding existing assets.
Therefore, review your investment portfolio to ensure it’s not overly concentrated in riskier assets like stocks and stock funds.
This doesn’t mean avoiding the stock market altogether, but at this stage, it’s crucial to rebalance your investments to ensure your asset allocation aligns with your goals and financial situation.
The One Big Beautiful Bill Act in the US introduced a tax deduction benefit specifically for seniors applicable from tax years 2025 to 2028.
Qualified seniors, aged 65 and above, can receive an additional tax deduction of up to $6,000, while qualified married couples filing jointly may deduct up to $12,000.
This added deduction can be stacked on top of the standard deduction and any additional standard deduction for those aged 65 and above.
However, to enjoy the full benefit of the senior tax deduction, your Modified Adjusted Gross Income (MAGI) must meet certain requirements: no more than $75,000 for single filers and no more than $150,000 for married couples filing jointly.
If your MAGI exceeds these thresholds, the deductibility gradually decreases until you entirely lose eligibility for this benefit.
When MAGI reaches $175,000 for single filers or $250,000 for married couples filing jointly, you won’t be able to claim this new deduction.
For many Americans, their 60s are a stage entering retirement life, but it’s also a period where mistakes in retirement planning can occur, potentially leading to financial consequences.
Therefore, seriously consider whether to delay Social Security benefits, evaluate the feasibility of converting traditional retirement account funds to Roth accounts, devise a rational retirement fund withdrawal strategy, and confirm if you meet the conditions for the new senior tax deduction benefit.
Remember, your 60s are a critical period in your financial journey towards retirement, requiring careful planning and decision-making to ensure a secure and comfortable post-work life.