• Harry N. Stout

206- Financial Must-Dos Age 70 and Over


I often get asked what money actions people should take by certain ages. In this condensed excerpt from my upcoming book, Good Money Habits in 17 Minutes A Day, I discuss what individuals should accomplish from age 70.


Your needed must-do actions don’t stop when you reach age 70. A series of new matters arise that must be addressed. Once your 70s arrive, most people are just beginning their non-working years. Part of financial success at this age is setting yourself up for a secure last stage of your life by avoiding key mistakes that could really set you back. They include the following:


1. Carefully consider claiming Social Security early. Today, your monthly Social Security retirement benefit is derived based on your earnings record—specifically your 35 highest-paid years on the job. From there, you're entitled to your full monthly benefit at your specified full retirement age, which depends on what year you were born. That said, you're allowed to file for your Social Security retirement benefit as early as age 62, and many seniors opt to go this route. But for each month you claim Social Security ahead of full retirement age, your monthly benefit is reduced on a permanent basis so that you'll be looking at a 25% to 30% reduction in your benefit if you sign up at age 62. Of course, claiming Social Security early is tempting.


If you file before full retirement age, you'll have more flexibility to spend. You can pay for that home improvement you've been putting off or take that big trip you've been hoping for. Initially, the extra money may be nice, but there's a good chance you'll come to regret lowering your benefit when your healthcare expenses start to mount, which tends to happen as people age.


2. Tapping your retirement savings too soon. Once you turn 59 1/2, you're entitled to take withdrawals from your retirement savings without the 10% early withdrawal penalty—and you don't need to be retired to do so. If you're still working, it really pays to leave that money alone. As is the case with claiming Social Security early, tapping your retirement plan in the early years of your retirement gives you more immediate options to spend. But, down the line, that could really come back to bite you, especially when you start relying heavily on your savings to pay your retirement expenses.


3. Delaying Medicare enrollment. Your initial Medicare enrollment window spans seven months, beginning three months before the month of your 65th birthday and ending three months after that month. If you're still working at age 65 and are covered by a group health plan through your employer, then you have the option to stay on that plan and sign up for Medicare during a special enrollment period later on.


If you don't have group health coverage and you delay your Medicare enrollment, it could end up costing you in the long run. For each year-long period you're eligible for Medicare but don't sign up, you'll have a 10% surcharge tacked onto your Part B premiums. Given that those premiums tend to increase from year to year anyway, that's not an expense you'll want to bear.


4. Keep copies of your advanced healthcare directives with your primary care doctor. This action avoids any misunderstanding about your care if you can’t speak for yourself. Seniors themselves, along with family members and close friends, may be best positioned to recognize signs of diminishing capacity. Simply watching for red flags isn’t enough. It’s best to start planning for possible problems before warning signs appear.


5. Keep your finances simple. In the Fulfilling Stage, organize and simplify your finances to the maximum extent. Complex investments and scattered bank, brokerage and retirement accounts raise the odds that costly financial mistakes will occur. Look to simplify your holdings to the maximum extent possible to ease understanding and account maintenance. To further simplify matters, automate bill payments and arrange for direct deposit of regular income sources, such as Social Security. To minimize solicitations and reduce the risk of fraud, put your telephone number on the National Do Not Call Registry. Once you’ve simplified your finances, make a list of all your assets along with key contacts such as financial advisers, accountants, insurance agents and lawyers.


6. Consider hiring a financial administrator. Next, consider whom you might trust with all the information you’ve just organized. Which family members, friends or professionals might help you manage your money as you age? One place to start: If your spouse generally steers clear of all things financial, get him or her involved now if possible. Financial novices who are suddenly forced to take over household money management—perhaps because a spouse has become incapacitated—are particularly vulnerable to making costly mistakes.


Next, consider getting another trusted family member or friend involved in your finances. This doesn’t mean turning over the keys to your financial life. Instead, you’re helping that person learn how you manage your money—in case they need to take some control later on—and getting another set of eyes to help you watch for unpaid bills or suspicious activity.


Online services that put all your financial information in one place may help. If you need additional help, and close friends or relatives aren't up to the task, consider hiring a daily money manager to help pay the bills, deal with creditors and organize tax documents, among other services. Expect to pay anywhere from $50 to $150 per hour or more, depending on where you live and the level of service provided.


7. Plan ahead for the time assistance that will be needed. As family members begin to help out informally, it may be tempting to add a relative’s name to your bank account so that person can help pay the bills. That may work fine as a short-term solution, but it shouldn’t be your primary long-term plan for dealing with a potential loss of financial capacity. Joint accounts can easily lead to disputes over misuse of funds, inheritance and other issues.


For example, if you add your daughter’s name to your bank account, that account will go to her when you die, even if you intended to split your money evenly among your children. Instead of relying on such ad hoc arrangements, all seniors should have a durable power of attorney for finances. With this document, you designate someone you trust, known as your “agent,” to manage your finances. The “durable” part is key—that means the power of attorney remains in effect even if you become incapacitated.


While you have capacity, you can always change your agent or revoke the document completely. Placed in the wrong hands, a poorly crafted power of attorney leaves the door wide open for financial abuse and exploitation. So, it’s critical to not only choose an agent—and backup agents—whom you trust completely, but also to work with a lawyer well-versed in elder law when preparing the document. Find elder-law attorneys in your area at the National Academy of Elder Law Attorneys website. To minimize the risk of abuse, the power of attorney can limit the agent’s ability to make gifts or transfer assets to a certain dollar amount and restrict changes in life insurance and retirement plan beneficiaries.

Summary

As individuals age, they encounter new financial challenges and actions that they must take. Some actions build on those taken at younger ages while others are brand new experiences. Knowing the actions you will need to take makes you aware of the need to seek advice and counsel to make the right decisions for your specific situation. The key is to have a plan that ages as well as you likely will.

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