July 2021

Advice; for my 65-year-old Self

Two years ago, we started a three-part series offering advice to help navigate important stages of your financial life.  In part one, Advice; for my 25-year-old self, we stressed the importance of establishing savings goals and the need to maintain a clean credit profile.  We also emphasized the need to take advantage, early in your career, of retirement savings plans.  In part two, Advice; for my 45-year-old self, we offered some guidance to help you through mid-life challenges, like caring for elderly family members, while at the same time preparing to send your own kids off to college.  Additionally, we emphasized the need to update the progress you were making on your retirement savings and updating long-term financial goals.  This is part three, Advice; for my 65-year-old self, the culmination of forty years of planning and navigating what comes next.  It’s time to reap the benefits of all your hard work, untold sacrifices, and enjoy the successes of a life well-lived.

Do I have enough? 

Retirement often starts with anxiety.  Will I outlive my assets?  How much can I spend?  What if I get sick?  How much do I give my kids, and when?  The best way to address these complicated issues is by reviewing your comprehensive financial plan (hopefully started many years ago).  Start with your overall net worth and spending priorities – both planned and unplanned – to determine how far your nest egg will go.  Crunching all the numbers under various scenarios can help and give you peace of mind.  With an updated financial plan as a roadmap, this letter will also serve as a conversation starter for some of the other important financial decisions you’ll likely encounter.  These include, but certainly are not limited to, Social Security and Medicare, long-term care, ways to maximize the benefits of your IRA, and some thoughts on gifting.

Social Security; when? 

There are two challenges all Americans face in their early to mid-60’s: when to start taking Social Security benefits and deciding what Medicare coverage is best for you.  Social Security eligibility rules are complex and vary by age cohorts.  This is especially true right now for those born between 1954 and 1960, as what is considered full retirement age (FRA) is gradually being increased from age 66 to age 67.  Further, Social Security claims can be made as early as age 62 and as late as age 70.  Depending on when you start claiming your benefit, the difference in monthly income could vary by hundreds of dollars.  Generally speaking, deferring benefit payments to age 70 increases your monthly check by 8% per year.  While that sounds very attractive, you have to balance it against the fact that you’ll be forgoing cash flows for more than a few years – the breakeven tends to be around fifteen.  So, if you’re healthy and have adequate resources and longevity runs in your family, you might be better off in the long run by delaying benefits you’re entitled to now.  Spousal and survivor benefits are also an important element of planning.  Coordination is key and modeling may help demystify the complex.

Another key question may be deciding whether to draw Social Security benefits or tap funds from an IRA during your pre required minimum distribution (RMD) years.  IRA proceeds and Social Security benefits can have different tax treatments and careful consideration should be given to balancing any reliance on a particular income source.  We can help assess all of the variables unique to your situation to best optimize the timing of your Social Security benefits.

Medicare Parts A, B, C, and D

The other “must-do” when turning 65 is enrolling in Medicare and deciding if any Medicare Advantage plans make sense for you.  The enrollment period for Medicare starts three months before your 65th birthday and continues for three months following your birthday.  If you are receiving Social Security benefits you will be notified by the Social Security Administration (SSA) of the need to enroll.  If not, you will need to contact the SSA directly.  Medicare Part A pays for hospital and facility costs and you pay no premiums.  Part B helps pay for medical costs and includes things like doctor visits and outpatient procedures.  Parts A and B together are called Original Medicare and are run by the federal government.  Part C pays for hospital and medical costs, plus more, and is only available through private health insurance companies.  Part D helps pay for prescription drugs.

Medicare Part B enrollment happens at the same time as Part A enrollment.  Enrollment, however, can be delayed if you or your spouse are covered by an existing employer’s plan.  If not, it is important to sign up at the same time as Part A or else your future coverage could be delayed by several months, exposing you to significant out of pocket costs, and future premiums could cost more.  The current Part B monthly premium is $148.50 and is either taken directly from your Social Security benefit or billed to you.  Under Parts A and B, you have the flexibility to use any doctor or hospital that accepts Medicare.  Also, after reaching your annual deductible, you will incur a 20% co-pay with no annual limit.  This can be mitigated with a supplemental (Medigap) coverage plan.  Further, under A/B there is no prescription drug coverage, but, this too can be added through enrollment in Medicare Part D.

Enrolling in Medicare Parts A, B, and D, plus Medigap can be confusing, expensive, and leave coverage gaps.  For many, a preferred alternative is Medicare Advantage (Part C).    Medicare Advantage is an all-in-one plan including Parts A & B and usually Part D.  Most plans also offer benefits covering dental, hearing, and vision.  The plan is administered through a large insurance provider and in most cases the monthly premium is covered by your Part B premium.  The Centers for Medicare and Medicaid Services (CMS) use a “star” rating system to evaluate plans, with highly rated plans benefitting from financial incentives.  Like a PPO or HMO, plan participants are expected to use doctors and facilities within the plan network.  This is an important consideration if you split time between two homes in different parts of the country.  Again, there are many complexities and options when starting Social Security and Medicare and we can help steer you through the confusion.

Long-Term Care

While Medicare and Medicare Advantage help cover you through day-to-day medical needs as they arise, Medicare does not cover long-term care that is considered personal care and not medically related.  Medicaid does cover long-term care, but only after savings are spent down.  According to the U.S. Health and Human Services (HHS), just over half (56%) of today’s 65-year-olds will require long-term services and supports (LTSS), for an average duration of 2.8 years.  Total expenditures could average as much as $250,000, or more.  Because of Medicaid restrictions, most Americans can expect to cover these expenditures out of pocket.  HHS also estimates that expenditures can be much higher if care help is unavailable from family members.  Now is the time to consider family health history and available family assistance resources to determine if money should be set aside or if long-term care insurance is appropriate.

Additional healthcare things to consider include establishing a durable power of attorney (DPOA) to assume financial responsibilities if you are no longer able, as well as establishing a medical directive so that your health wishes are carried out as you would like.  In fact, this would also be a good time to make sure family members are aware of all your wishes and are familiar with key services providers, such as your doctor, attorney, accountant, property managers, financial professionals, and people responsible for your personal property such as mechanics and art professionals.  Lastly, make sure key documents, including trusts and insurance policies, are in order, in safekeeping, and accessible to trusted family members.

IRA and 401k Considerations

On a happier note, if you’ve practiced healthy retirement savings habits over the past 40 years, you’ve likely built a nice nest egg in an IRA and/or 401k plan.  While the “do’s and don’ts” of IRAs’ and 401ks’ are largely set, there are a few important things to consider to help manage your savings now and into the future.

First, let’s think about your beneficiaries.  One of the most significant consequences of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was the loss of the “stretch” IRA.  A stretch IRA allowed for inherited IRA’s to be withdrawn over the beneficiaries remaining lifetime.  Under the SECURE Act, with a few exceptions, inherited IRAs must now be fully drawn down, and taxes paid, within ten years.  One way around this may include creating a trust as an IRA beneficiary, buying life insurance, or simply spending down your IRA assets while preserving other assets in your estate.  Again, there are many family and tax considerations unique to you that we can help navigate.

Next, consideration of at least a partial conversion of your traditional IRA assets into a Roth IRA is centered on your current tax rate versus the anticipated rate when it’s time to take RMDs in the future.  Obviously, it is difficult to know future tax rates and potential income, but if you’re recently retired, your current income could be lower than it will be when you start taking RMDs, particularly if you have a large IRA/401k balance.  With a Roth conversion, the value of assets transferred from your IRA are included in current year adjusted gross income (AGI) and taxed accordingly.  (Importantly, a significant bump in your current AGI could have an adverse effect on your Social Security and Medicare benefits.)  Converted assets, however, grow tax free and are not subject to any RMDs.  Further, your beneficiaries would be able to take tax-free withdrawals in the future. 

Now would also be a good time to re-evaluate your overall portfolio allocation.  If left unchecked, desired portfolio allocations can get out of balance.  Make sure you have the right mix of stocks and bonds.  Within stocks, make sure your current portfolio aligns with your current appetite for risk.  It may be time to de-risk your portfolio of some high flyers in favor of more dividend stocks.  Also, check that you have the right mix of liquid and illiquid assets.


It’s not just a child’s age that will help determine readiness to receive wealth – it is skill, education, and expectations.  This is particularly important if you’re passing down a family business.  Research by the Williams Group says only 3 in 10 family businesses make it through the second generation, and after 3 generations, that number drops to 1 in 10.  As in most things, trust and communication are key.  Now is the time to open up and have frank family conversations.  Preparing heirs means teaching them to have a healthy relationship with the responsibilities of wealth.

Parents can also draft trusts and other governance documents to manage funds for the next generation.  Deciding on an appropriate trustee is important – often a family member is best, but sometimes you may want to avoid the potential family conflict.  There’s also the reality that many marriages, unfortunately, last less than “till death do us part.”  Creative trusts can help protect and preserve family assets.  Large outright gifts can also often reduce personal motivation and lead to unintended consequences.  Note the current annual gift exemption is $15,000.  Importantly, though, direct tuition payments do not count against the annual limit. 

Start thinking about the charitable donations you’d like to make in future years, particularly when your required minimum distributions (RMDs) begin.  You can reduce the amount your RMD adds to your AGI by making qualified charitable distributions (QCDs).  You can begin making QCDs after you hit age 70 ½ and there are annual limits, but QCDs can help lower your taxable income while helping you achieve your charitable giving goals.

In addition to looking at QCDs, we can also help you evaluate other charitable gifting strategies.  For instance, do donor advised funds (DAFs) make sense for you?  DAFs allow you to front load multiple years of charitable gifting to maximize the tax benefit, then allow you to gradually make gifts of your choosing and on your timeline.  Remember, when gifting taxable assets to charities, prioritize those with the lowest cost basis.

As for the estate tax exemption and the lifetime gift tax exemption, we cannot predict if or when the current exemption amounts of $11.6 million (single filer) for both will change, but we do know that if nothing else happens the current exemption amounts will expire at the end of 2025 and revert back to 2017 amounts, approximately $5.6 million adjusted for inflation.  It is worth considering expediting major planned gifts in the event the current administration scales back existing lifetime gift exemption amounts.  This lower amount will more than double the number of families exposed to the estate tax. 

Strategies to consider may include establishing a grantor-retained annuity trust (GRAT).  These types of trusts allow the grantor to shift assets from their estate into a trust while receiving annual income the assets produce.  Assets are considered removed from the estate at the expiration of the trust.  Importantly, the trust must expire before the death of the grantor.  Other trust options include spousal lifetime access trusts (SLATs) and qualified personal residence trusts (QPRTs) that can be an effective way to remove homes from an estate, much like a GRAT.  Irrevocable Life insurance Trusts (ILITS) may also be a consideration.  The bottom line is this: make sure you have and are comfortable with a comprehensive financial plan that considers all that is known and thinks about and prepares for the unknowns.

Have Fun!

If you are in your mid-60’s and thinking about retirement, congratulations!  Hopefully, decades of preparation have you ready.  Planning ideas we presented above are important and ongoing, but don’t forget your passionate pursuits.  Travel post-pandemic may look very different.  New business models have opened up different options for accommodations from resorts to private residences, as well as different modes of transportation including a growing universe of private air travel options.  It’s also possible for your passion to be profitable.  Interest in collectibles, like art and collector cars, continue to grow and new digital collectibles are being created in real-time.  Consider joining a Board or contributing “your time” to worthwhile organizations.  Lastly, spend quality time with your family and share with them all the steps you took and the wisdom you acquired over the past forty years making this all possible.