What Older Adults Need to Know About Money and Retirement

Key Takeaways

The timeframe for claiming Social Security benefits is age 62 to 70.
There are four parts to Medicare and income-based premiums.
Almost 70% of older adults will need some type of long-term care service.
Age-based investing guidelines suggest holding less stock as you get older.
Multiple potential sources of income can help older adults create a retirement “paycheck.”
Estate plans help transfer a deceased person’s assets at the lowest possible cost.

Personal finance can be complex for many older adults.

There are required minimum distributions (RMDs) to take and health and long-term care decisions to make, as well as worries about inflation, outliving assets, and withdrawing money from investments for living expenses. There are also over a dozen “milestone” ages where certain actions can or must be taken. See the table below.

25 Years of Milestone Ages for Older Adult Financial Decisions

Age	Description of Milestone Age Event
50	Eligibility for retirement savings plan catch-up contributions for workers age 50+
55	Eligibility for penalty-free employer retirement plan withdrawals if you leave a job
55 to 60	Eligibility to retire from many public pension plans with 25 to 30 years of service
55 to 65	Eligibility for money-saving “senior discounts” from many retailers and restaurants
59 ½	Eligibility to make penalty-free withdrawals from tax-deferred savings plans
59 ½ to 73	“Financial gap years” for optional withdrawals from tax-deferred savings plans
60	Eligibility for Social Security (SS) survivor’s benefits by widows and widowers, unless disabled; qualified disabled survivors are eligible for SS survivor’s benefits at age 50
62	Eligibility for a reduced Social Security benefit and to apply for a reverse mortgage
62 to FRA	Earnings limit applies before full retirement age (FRA) and SS benefits are prorated
65	Eligibility to enroll in Medicare and to transition from Marketplace health-care plans
67	Full retirement age (FRA) for workers born 1960 or later; FRA is phased in between age 65 and age 66, 10 months (depending on year of birth) for older workers
FRA to 70	Payment of 8% per year delayed retirement credits for postponing SS benefits
70 ½	Eligibility to make a Qualified Charitable Distribution (QCD) from a traditional IRA
70 ½ or 72	Start ages for required minimum distributions (RMDs): people born in 1950 or earlier
73	Start ages for required minimum distributions (RMDs): people born in 1951-1959
75	Start ages for required minimum distributions (RMDs): people born in 1960 or later

Some common financial errors of people age 60+ include little or no inflation hedging, no long-term care plan, no planning to minimize future income taxes, assuming that estate planning is for “the rich,” relying too heavily on financial salespeople, and improper asset withdrawals (too much or too little).

This article discusses “need-to-knows” for six areas of personal finance that pertain to older adults: Social Security, health insurance, long-term care, later-life investing, creating a “retirement paycheck” from asset withdrawals, and estate planning.

Social Security Need-to-Knows

Applicants for benefits must be at least age 62 and “fully insured” with 10 years of coverage.
Reduced benefits are available starting at age 62 and full benefits at full retirement age (FRA).
Delayed retirement credits with an 8% benefit increase per year are available between FRA and age 70.
Before FRA, $1 of benefits is withheld for every $2 over the earnings limit ($24,480 in 2026).
It is often wise to postpone benefits if you have substantial earnings and are in good health.
Break-even age is when total benefits from claiming early equal those from waiting to FRA or later.
Social Security should be contacted up to four months before your planned enrollment month.
Earnings history and benefit estimates are available with a personal Social Security account.
Benefits are taxed if combined income is greater than $25,000 (single) or $32,000 (married filing jointly).
On average, Social Security replaces about 40% of pre-retirement earnings, but this varies by income.
An annual letter states next year’s inflation adjustment (if any) and benefit after subtracting Medicare.

Health Insurance Need-to-Knows

Medicare beneficiaries’ premiums are adjusted annually for inflation.
Medicare covers people age 65+ and certain others (e.g., those with end-stage renal disease and ALS).
There are 4 parts: A (hospital insurance), B (medical insurance), C (Medicare Advantage), and D (drugs).
Part A and B benefits are provided by the federal government and Part C by private health insurers.
Many Original Medicare (Parts A and B) beneficiaries buy supplemental Medigap policies.
Medicare Advantage plans cover over half (54%) of eligible Medicare beneficiaries.
Early retirees must cover insurance gaps between the end of an employer plan and the start of Medicare.
Coverage gaps are usually covered through a state Affordable Care Act exchange or the COBRA law.
IRMAA (Income-Related Monthly Adjustment Amount) is an extra charge added to Medicare Part B and Part D premiums for higher-income beneficiaries; there are five tiers of IRMAA.
If you’re self-employed, you may be able to deduct Medicare premiums on your taxes (self and spouse).
Medicare open enrollment season runs from October 15 to December 7 annually.

Long-Term Care (LTC) Need-to-Knows

Nearly 70% of people age 65+ will need some type of LTC service sometime during their lives.
LTC services include home health aides, assisted living facilities, adult day care, and nursing homes.
Some people select a continuing care retirement community for a seamless continuum of care.
Nursing home cost is a big risk: e.g., $127,750 (private room) and $111,325 (semi-private) in 2024.
Some people purchase LTC insurance (LTCI), and either they or their family pay the premiums.
Many older LTCI polices have had large premium increases and become unaffordable for policyholders.
Some people “self-fund” LTC expenses (e.g., $120,000 cost per year x 5 years = a $600,000 nest egg).
Some people plan to rely on government Medicaid funding or others (e.g., family, friends, social services).
Some people plan to pay LTC expenses solely with guaranteed income streams (e.g., pension, annuity).
Only 3% to 4% of older adults actually have LTCI policies, so alternate plans are necessary.
Insurers are increasingly selling hybrid LTCI policies that combine life and LTC insurance features.

Later Life Investing Need-to-Knows

Later life investment guidance often conflicts, e.g., 110-age formula vs. an increasing stock allocation.
The age-based guideline formula for the stock percentage in an investor’s portfolio is 100-age (conservative investor), 110-age (moderate investor), and 120-age (aggressive investor).
Asset classes are groups of investments (e.g., stocks, bonds, real estate) with similar characteristics.
Historically, stocks have provided the highest return of any asset class over the long term.
Advice: diversify broadly, rebalance regularly, and plan for potential diminished capacity.
Rebalancing means regularly adjusting your portfolio back to your target asset allocation.
It is smart to add trusted contacts to investment accounts in the event of incapacity.
Older adults are “fraud bait” because they have more household wealth, on average, than young adults.
As fraud bait, it is important to be wary of scams via cold calls, texts, e-mails, and social media.
Older adults with generous pension and/or annuity payments may want to hold more stock, if desired.
A key factor to consider as an investor at any age is your personal investment risk tolerance level.

Retirement “Paycheck” Need-to-Knows

Sources of retirement income include Social Security, defined benefit pensions, tax-deferred savings plans (e.g., 401(k)s), individual retirement accounts (IRAs), annuities, taxable (brokerage) account investments, job or self-employment earnings, rental income, reverse mortgage income, and proceeds from the sale of a home (downsizing).
The “4% Rule” guideline recommends withdrawing 4% of accumulated savings in year one of retirement and inflation-adjusting that amount annually in line with economic conditions.
Based on the 4% Rule, retirees need about $300,000 saved for every $1,000 of monthly income from savings: $300,000 x .04% = $12,000 annual income ÷ 12 = $1,000 monthly amount.
Mandatory required minimum distributions from tax-deferred accounts must begin at age 73 (if born between 1951 and 1959) or age 75 (if born in 1960 or later); withdrawals are taxed as ordinary income.
Experts recommend holding a buffer account of three to five years of expenses not covered by guaranteed income sources in cash assets to avoid selling stocks during market downturns.
Roth account withdrawals are tax-free after age 59 ½ and if an account is open at least five years.

Estate Planning Need-to-Knows

The goal of estate planning is distributing assets as desired with the least amount of taxes and fees.
Spelling out your wishes (property transfers and end-of-life care) is a gift you give to your loved ones.
Dying intestate (without a will) may result in unnecessary hassles and expenses and loss of control.
Recommended documents are a will, living will with a health-care proxy, and durable power of attorney.
People need to revise legal documents as life events require (e.g., death, widowhood, divorce, marriage).
Beneficiary and contingent beneficiary designations on accounts should be reviewed regularly.
Documents with beneficiaries include wills, life insurance policies, and retirement savings accounts.
Assets without beneficiary or POD/TOD designations or a joint owner are subject to probate proceedings.
A digital assets inventory helps you and trusted loved ones access online financial and other accounts.
A detailed financial inventory and one-stop location (physical or digital) for important papers is advisable.
Also recommended is a letter of last instruction with end-of-life wishes and tasks for family members.
Trusted persons need to know where important documents and financial inventories are kept.

Final Thoughts

This article described dozens of need-to-know facts about managing finances in later life including recommended action steps. Take note of new (to you) information and consider how it applies to your life. As Ben Franklin once said, “An investment in knowledge pays the best interest.”

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