Wealth Advisory & Planning
March 25, 2022
Planning for the Ages: Your 60s and 70s
Each decade of life brings unique challenges and opportunities, financial and otherwise. Here, we focus on two formative decades — 60s and 70s — and highlight crucial planning issues for each decade.
Construct your general retirement plan. The vision of retirement shimmers on the horizon, but have you given any consideration to the bigger picture? If you will be relocating, take into account whether your retirement dollars will cover medical care and other services for seniors in your chosen domicile and will support your lifestyle needs. Talk to your advisors to ensure your assets are sufficient to retire and know exactly how much you can spend and how you anticipate spending it.
Do your research on Social Security. If and when you are eligible for Social Security, it is important to understand the implications of your decision to file for benefits. As always, timing is everything: You can file early (ages 62-65, depending on your year of birth), wait until full retirement age (age 66 and four months for those turning 62 this year) or wait until after full retirement age (earning “delayed retirement credits” until age 70). Each has its own advantages and disadvantages, and you should factor your life expectancy into the mix.
Consult with Medicare experts. You will need to decide how best to ensure adequate medical coverage during retirement. Upon reaching age 65, you will become eligible for Medicare or Medicare Advantage, an alternative to Medicare offered by private insurers. Deciphering the myriad options can be challenging, and it is advisable to work with an agent to determine an affordable level of coverage. Many reputable agents will provide the analysis for free.
Review your estate planning documents. Confirm that your estate planning documents are up to date and meet your expectations. Ask your Glenmede Relationship Management Team to create an estate plan flow chart using your net worth statement and the provisions of your will and/or trust to help you visualize the way your assets will pass at your death. A flow chart can also illustrate anticipated transfer tax liability and guide you in your decisions regarding the implementation of advanced wealth transfer techniques to mitigate taxes.
Start to open up. You may be asking yourself where the years have gone? Yesterday your children were toddlers, and today you marvel at the organized and enterprising young adults they have become. Family dynamics can change during your 60s, and it may be time to begin engaging the next generation in the family wealth legacy. At a minimum, your children should know where assets are located and how to proceed should anything happen to you. If you are charitably inclined, this may be the ideal time to establish a family foundation or donor-advised fund to allow your children and grandchildren to experience the beauty of shared family philanthropy.
Revisit your named agents. Your estate plan may be settled, but when did you last check the agents named under your “ancillary” documents? These documents, such as a power of attorney and living will, will come into play should you become unable to handle your financial affairs or make medical decisions. Every named agent should have a successor, no matter his or her current age and ability. Bear in mind that some of these tasks will be facilitated by geographic proximity, and you can name multiple agents to act jointly or independently as you see fit.
Take required minimum distributions (RMDs), or don’t. Starting at age 72, IRS rules dictate that you take RMDs from your traditional IRA accounts. These annual distributions are taxable as ordinary income and must occur regardless of their effect on your Social Security benefit, Medicare premium and income tax return. If you do not need the income, you can make a qualified charitable distribution of up to $100,000 of your annual RMD from your IRA to an IRS-approved charitable organization.
Pay some bills. While it is true that you can fund 529 plans for the benefit of your grandchildren’s educations, consider that amounts paid to an educational institution as tuition are simply not gifts for IRS purposes. This “estate depletion” technique reduces your taxable assets and uses no federal estate tax exemption. Further, it leaves the funded 529 plan to roll to the next beneficiary or for use at a later date. If you are facing federal estate tax liability or live in a high estate tax jurisdiction, you may want to give some advance consideration to the source of funds to pay the tax. This is especially true if your estate comprises active business interests, is heavily weighted toward real estate or contains a substantial allocation to private equity deals. Anything that is not marketable securities or cash may suffer under “fire sale” circumstances. Planning for liquidity allows you to be measured and to maximize the value of your assets whether through the purchase of insurance or strategic liquidation over time.
Be selective. Another opportunity to be strategic presents itself every time you decide to give away assets. The assets you hold at death will receive a step-up in tax cost (basis) for income tax purposes, whereas assets gifted during your lifetime retain carryover basis so that built-in gain is realized upon the eventual sale. The upshot here is that lifetime gifts of high-basis assets are worth more to your children than equal gifts of low-basis ones, and that the lowest-basis assets should be held until death, if possible. If estate tax liability is not a concern and your advisors deem it feasible, consider terminating trusts to include assets in your estate at your death to enable basis step-up.
This presentation is intended to provide a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. It contains Glenmede’s opinions, which may change after the date of publication. Information obtained from third-party sources is assumed reliable but is not verified. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.