The $246,500 Gap: Why 60 Is the Last Tax Window

The average 60-year-old has $246,500 in a 401(k), Fidelity data shows. That figure lands well below the firm's 8x salary target for that age. Most workers face a savings gap. Missing that mark changes the math on tax decisions in the years just before and after retirement.

The five years around age 60 carry unusual tax opportunities. Contribution limits rise for those 50 and older. Roth conversion windows open while income is still manageable. Social Security timing decisions harden. The first preview of required minimum distributions starts to take shape. Each choice made or skipped during this stretch echoes for decades.

Consider catch-up contributions. Workers 50 and older can put an extra $7,500 into a 401(k) in 2025, on top of the $23,000 base limit. That is $30,500 total per year. For someone starting at 60 with $246,500, adding that amount annually for five years would grow the balance to roughly $450,000, assuming a 6% return. That is still below the 8x target for a $100,000 salary. It closes part of the gap.

Roth conversions offer another lever. Moving pre-tax savings to a Roth IRA triggers a tax bill now. It eliminates future taxes on withdrawals. The window is narrow: too early and you lose growth years; too late and the tax bill grows with account balances. Many retirees convert up to the top of their current marginal bracket each year. They avoid a spike when RMDs start.

Social Security timing matters just as much. Delaying benefits from 62 to 70 increases monthly payouts by about 8% per year of delay. For a couple, the higher earner's delay can boost lifetime income substantially. The decision interacts with withdrawal planning. Taking Social Security early at a reduced amount may force larger portfolio withdrawals later, accelerating account depletion.

Required minimum distributions begin at age 73 under current law. The calculation uses the account balance on Dec. 31 of the prior year. That creates a natural deadline for Roth conversions and spending. Someone with $246,500 at 60 could see that account grow to $500,000 by 73. The first RMD on $500,000 at age 73 would be roughly $18,900, taxed as ordinary income. That could push a retiree into a higher bracket if combined with Social Security and other income.

Fidelity's 8x target is just a benchmark, not a guarantee. The actual number needed depends on spending, health care costs, and market returns. The $246,500 average suggests most 60-year-olds have ground to make up. The five years ahead offer the last best chance to use tax rules to narrow the gap. Skipping that window leaves the gap to compound.