As you enter your 70s, your primary focus should be to utilize the strong foundation you have built up to this point to help you continue through your retirement years. With that, there are many challenges along the way – maintaining appropriate health insurance, managing income sources and safe withdrawal rates, providing safeguards for potential long-term care events, and maybe even setting up the next generation for success through inheritance planning. This checklist outlines some important things to consider as you seek to enjoy what you’ve worked so hard to achieve.
Have I Set Up Efficient Ways to Handle My Retirement Income? – Although some people continue working in their 70s, either through desire or necessity, most will rely on income from Social Security, retirement accounts or even pension incomes. Regardless of the source, it is important that you consider a few key points:
- If you have waited to receive Social Security benefits, age 70 is latest you can postpone receiving them, allowing benefits to increase. Depending on other sources of income, Social Security can be up to 85% taxable
- Your retirement accounts will grow tax deferred until you start distributions, but required minimum distributions must begin by age 72 to avoid penalty (except for Roth accounts). Layering-in these accounts with other income sources may help to control your taxable income and tax bracket in retirement
- Pension annuity payments are predictable; you know what monthly income you have coming in. But if you elect a pension lump sum of benefits, your monthly income could be variable. You could defer receiving that income until you need it or until you are required to start withdrawing it
- Cash value in life insurance policies have likely accumulated over time and can be taken as tax-free withdrawals
Can I Afford More Risk in My Retirement Portfolio? – Sometimes, the better question is: “Can I afford not to take more risk on my retirement portfolio?” The goal is for these assets to carry you into your 90s, while also maintaining purchasing power. Think about the following:
- Have you revisited your budget to make sure you are accounting for all core expenses, variable expenses and emergency funds?
- If you have already started withdrawing funds from your portfolio, review your withdrawal rates to make sure they can be safely maintained through your lifetime, and your spouse’s
- When was the last time you reviewed your risk tolerance? If you are not working with a financial advisor, or don’t have active management on your portfolio, it may be time to discuss what level of risk is now appropriate for your age. Remember, it is important to use different accounts to accomplish different goals, while ensuring that your entire nest egg is not entirely invested in equities at a time when you need income
When Was the Last Time You Evaluated Your Health Care Needs? – As you get older, reassessing your healthcare needs and goals is a must. Whether it is life insurance, health insurance or long-term care insurance, they all play major roles in your retirement:
- Do you have too much or too little life insurance? At this point in your life, most major expenses should be paid off – mortgages, education expenses, large expenses for children, etc. If you had insurance in place to cover these expenses, it may be time to drop this coverage if the expenses no longer exist
- Health insurance is a large expense during retirement years and an important part of your budget. Medicare premiums can fluctuate, so depending on your income, it may be necessary to review if this coverage is adequate, based on your current or expected future health
- Are you covered in the event of a long-term care need? Unless you have insurance in place to cover these expenses, the expectation would be that you self-insure. This could have a major impact on your portfolio if this occurs, so it is vital to plan accordingly
Do You Have the Necessary Legal Documents in Place? – Estate planning becomes more and more important as you reach your 70s. There are many techniques to help families meet their goals. Here are a few to look out for:
- Beneficiary designations are the first things you should review before you look at other legal documents. These supersede any directions in Wills, and also determine where those assets go, as directed by the beneficiaries listed. Make sure these reflect your current intentions
- Wills, Powers of Attorney and Advance Health Care Directives are core documents that everyone in their 70s should have in place. Revisit these periodically to make sure they are up to date
- Should you be looking into a trust for your estate? Depending on your situation, a trust may make sense, and coordinating with your financial advisor and estate planning professional can help you put the proper trust in place, if necessary
Reviewing your spending, portfolio allocation, and overall financial plan is a vital step in maintaining a comfortable living in retirement. Many retired clients require more guidance in their retirement years, as we help them maintain required minimum distributions, steady income flows, and discuss legacy planning. We help make sure there are plans in place to protect these nest eggs – and this is not a responsibility that we take lightly.
This checklist is meant to serve a general guide to some important financial and life decisions. At Hefren-Tillotson, we feel it is never to early or too late to be thinking about retirement or about putting your plan in place. To get started on your comprehensive MASTERPLAN®, contact me at 412-633-1524 or at email@example.com. I am dedicated to helping you navigate through this dynamic time.