Sixty Somethings are a growing force in the labor market which isn’t surprising since we’re living longer and have changed how we view retirement. In your sixties, you’ll need to make some key financial planning decisions affecting retirement, even if you aren’t retiring any time soon. Here is Beacon Pointe’s list of top tips to get you on track to live your life your way.
Picture Your Future Lifestyle. Now’s the time to determine if your resources will allow you to live the way you want to live once you’re not bringing home a paycheck, so you need to take a realistic look at your future lifestyle. What activities do you enjoy? Will you work part-time? Will you downsize, relocate or buy a second home? Do you plan on traveling? If you’re married, your spouse may have very different answers to these questions, so we recommend brainstorming separately and then coming together to develop your joint vision. Once you have your vision, estimate how your income and expenses will change (our Beacon Pointe expense worksheet might be a helpful tool) as you’ll need those estimates to determine if your retirement picture is a reality, needs to be modified, or what it’ll take to make it a reality.
Create a Plan to Make Your Vision a Reality. You may be shocked to learn that to retire at age 67 and replace 85% of your pre-retirement income you might need to have saved at least eight times your current income.While you can get an estimate using an online calculator, retirement is close enough to consider getting professional help, as slightly different inputs can significantly alter your data projections. An advisor can help you create a plan to get you on track and give you the framework to make key decisions such as how long to work, whether to work part-time, whether you can afford to buy a second home or whether you need to scale back a bit. Just don’t retire without some serious number crunching because re-entering the workforce might be difficult and a new job might be less lucrative.
Save Like Crazy. If you have to save more to get on track, make sure that’s your priority above all else, including helping your grown children. Whether you’re saving to get on track or just adding to your nest egg to give you more financial freedom, you should know where to direct your resources. First, pay off any lingering credit card debt since the interest charged is likely greater than what you’d earn saving for retirement. Next, make sure you have enough cash set aside to cover three to six months of living expenses as emergencies will pop up and it can hurt you financially if you have to liquidate investments in a down market.
Once you’ve eliminated credit card debt and bolstered your emergency fund, get busy maxing out your contributions to tax-advantaged retirement plans (e.g., 401(k)s, IRAs) because investments here can really grow quickly since you are typically able to contribute pre-tax funds which then grow tax-deferred until you take distributions later in retirement. If your company offers a 401(k) you could contribute up to $24,000 in 2017. If you’re self-employed or a business owner you have several attractive tax-advantaged plans available to you, so speak with your advisor. Even if your employer doesn’t offer a plan or you’re a non-working spouse, talk to your advisor about funding an IRA (up to $6,500 in 2017). If you can save more than what you can contribute to tax advantaged plans, go for it! An advisor can help you put those additional savings to work.
Carefully Consider How and When to Take Social Security. One of the biggest financial decisions you’ll make in your sixties is deciding how and when to take Social Security. While most Americans need to collect Social Security as soon as it’s available (age 62 or 60 if you’re widowed) to make ends meet, Beacon Pointe’s top tip here is to avoid taking benefits too soon. Taking benefits at 62 means you’ll only receive about 75% of the monthly benefit otherwise available to you at your full retirement age (“FRA”) which is 66 for those born between 1943-1954. Plus, if you’re still working while collecting Social Security and haven’t reached your FRA, Social Security will reduce your benefits by $1 for every $2 earned over the earnings cap ($16,920 in 2017). Delaying taking benefits until age 70 can increase your benefit to 132% of your FRA benefit, so if you can swing it and have a normal life expectancy, it probably makes sense to take advantage of the 8% annual bump in benefits you’d receive until your age 70 by delaying (don’t delay taking spousal benefits beyond your FRA as these don’t increase after FRA).
Our second tip is to get help with Social Security if you’re married because you’ll have some special options that might allow you to maximize your combined benefits. For questions or an estimate of your benefits, contact Social Security (800) 772-1213 or http://www.ssa.gov/ or a Beacon Pointe advisor is happy to assist you.
Apply For Medicare On Time. If you don’t apply for Medicare during your initial enrollment period you may face a gap in coverage and permanently pay higher premiums (Part B premiums increase 10% for each 12-month period you delayed). Unless you’re already receiving Social Security before your 65thbirthday, you won’t be automatically enrolled in Medicare Part A (hospital insurance) and Part B (medical insurance) and will need to enroll during the seven month period that starts three months before the month in which you turn 65. You may not have to sign up for Medicare Part B and pay Part B premiums if you or your spouse is still working and covered under an employer’s plan, if you’re eligible for a Special Enrollment Period (“SEP”) that extends your enrollment period until eight months after termination of employment or health care coverage. Be sure to check with the employer’s human resource department though as some coverage won’t qualify you for a SEP (non-credible coverage, covering few employees or COBRA) so you’ll need to sign up during the Initial Enrollment Period. For questions call Social Security (800-772-1213) or visit Medicare’s website: http://medicare.gov/.
Medicare doesn’t cover everything, so when you sign up you should also consider a Medigap or Medicare Advantage plan. For an additional premium, a Medigap policy supplements your Medicare Part A and B coverage to reduce your out of pocket costs but doesn’t cover prescription drugs, so you should also consider enrolling in a Part D when enrolling in Part A and B if you go the Medigap route. If you decide to purchase a Medigap policy, do so during the six month period that begins the month of your 65th birthday to guarantee acceptance and avoid premium increases. Alternatively consider a Medicare Advantage plan if you want lower plan premiums and more of a HMO style plan. These Part C plans replace your Part A and B coverage and typically add in prescription drug, dental and vision care coverage, but through the plan’s providers. Sign up during the same Initial Enrollment Period (the seven month period beginning the three months prior to the month of your 65th birthday). Visit Medicare’s website for coverage options.
Medicare and Social Security can be tricky, and it is important to be strategic when it comes to both, so if you need guidance on planning out your financial (retirement) future, please do not hesitate to contact Beacon Pointe for assistance.
Review Your Investments. At some point you’ll switch from adding to your nest egg to drawing from it, so it’s a good time to get professional help to make sure you’re diversified and to determine if a portion of your portfolio should be invested more conservatively. On the flip side, you don’t want to be too conservative because you might not touch a portion of your portfolio for 15-30 years. If you’re invested too conservatively you might lose out on the potential for growth that can help stretch your nest egg over your lifetime and keep up with inflation.
Have Back Up Plans. Most people over age 65 will have some health deterioration requiring them to stay in a long-term care facility or have help at home with the activities of daily living (getting around, eating and bathing) and Medicare doesn’t cover long-term care (LTC). Make sure you either set aside funds to cover this likely future cost or get moving on applying for a LTC policy as premiums increase and your insurability declines with age. Your sixties is also the time to make sure you have an estate plan to control who receives your assets and how key people will distribute your assets and care for you on your incapacity or death. If you have a plan but haven’t reviewed it in five years or you’ve had some major life changes occur (marriage, divorce or the birth or death of a loved one) it’s time to call your attorney for a review. Now is also the time to review your beneficiary designations on life insurance, annuities, IRAs and workplace retirement plans to make sure the benefits pass to the right people, particularly since your will or trust won’t control these benefits.
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