Like Chris says, that is the spindle seal. It helps, and you need it, but its not as good a seal as you find in other places.
In my '79 150, I used to drive through a lot of water. The hub was sealed well, but water would come in through that spindle seal, contaminating the spindle bearings and causing me to have to repack the wheel bearings also.
I experimented with rigging a spring to keep tension on the axle to keep the seal pulled tight against the rear of the spindle, but it did not help, and caused other problems.
The one thing I found that did help and almost totally stopped the water I found almost by accident.
I don't know what front end I had, Dana 44 maybe? But they sold a hollow steel tube with a grease fitting on one end, which was closed.
It was called a spindle greaser.
The other end was threaded internally to fit the thread on the end of the spindle tube and had an O ring seal.
You took the hub off, screwed this greasing adapter onto the end of the spindle with the axle going up inside it.
Then you pumped grease around the axle, through the spindle, and out the back seal.
This greased the spindle bearings and pushed out any water or dirt without having to tear the whole thing down.
As a byproduct, it also filled the spindle tube with grease.
That grease did not really have anywhere to go, so it stayed in there forming a dam that blocked the water from the wheel bearings.
I went from repacking my wheel bearings after every weekend during hunting season, to about once a year.
Don't know if they make anything like that for a 60, or if it would do any good, but something to think about.