Can You Retire at 60? It May Be More Realistic Than You Think

When it comes to simplifying complex topics, everyone loves an easy to remember rule of thumb. But there’s one rule we can do without—and not surprisingly, it’s a favorite on Wall Street. We’re talking about the “8x rule”, the financial services industry’s favorite guideline for how much money you’ll need stashed away for retirement. The formula suggests you’ll need eight times your annual salary saved by the age of 60 to live out your golden years comfortably. If that sounds intimidating, the good news is you probably don’t need that much. 

Fear vs. Reality 

A recent Gallup poll found only 43% of non-retired adults expect a financially comfortable retirement. However, here’s the catch: in the same poll, 77% of retirees said they have enough money to live comfortably. So where is the discrepancy? Blame it on the fear mongering led by financial services professionals pushing unrealistic goals like the 8x rule. Many retirees realize once they’re in retirement, they have plenty of money. While that might sound like good news, it overshadows a sad reality of the anxiety the 8x rule creates. It’s likely many people are working longer than they need, unnecessarily chasing a bigger savings goal.  

What is often overlooked in calculating how much money you’ll need in retirement is that your expenses will not be the same. College tuition has been paid. You may no longer have a mortgage. Further, retirement spending isn’t linear. In fact, research has shown when graphed, the pattern of spending is more likely to imitate the shape of a smile. Generally, there’s an uptick at the beginning of retirement as you enjoy more travel and activities, a dip in the middle as life happens and spending slows, then another uptick as healthcare expenses increase toward the end of life.  

Perhaps most troublesome about the 8x rule is that it pressures many retirees and soon-to-be-retirees to stay in riskier investments, chasing higher returns when instead they should be shifting into retirement-safe options to protect their nest egg. In the event of a market crash, the impacts could be devastating, especially when there isn’t enough time to gain the losses back.   

What the Numbers Say  

Knowing the 8x rule isn’t rooted in reality, let’s instead look at the facts—starting with what people spend in retirement. The Bureau of Labor Statistics reports people ages 61-78 spend an average of $70,207 per year. Meanwhile, retirees over the age of 79 spend just under $50,000 per year. (There’s that smile-pattern we mentioned).  

Now with that mind, let’s work backward and figure out how much money the average person would really need. For arguments sake, let’s round up and say you’ll spend $75,000 annually. Then, we should factor in social security benefits. Let’s say one spouse receives $30,000 annually and the other gets $15,000 annually. That leaves a difference of $30,000 of income needed each year. Assuming a conservative return of 5%, you’d only need $600,000 saved. And to clarify, in this scenario we’re assuming you’re living off the interest on your investment; not even touching the principle.  

Now, if you were making $100,000 per year prior to retirement and followed the 8x rule, you would have been targeting a savings goal of $800,000. Imagine how much longer you would work just to save that extra $200,000.  

So, here’s the takeaway—don’t fall for the fearmongering. There is no one-size-fits-all approach. As we’ve illustrated here, you can still have a comfortable retirement with money left over for less than what the 8x rule would have you believe. Using your example above, you can adjust up or down based on your situation to better understand where you stand. We’ll create your personalized Roadmap for Retirement ^SM so you never have to guess or worry again. 

Disclaimer: Numbers are for illustrative purposes only. Consult a professional for personalized advice.