Future-Proofing: Fundamental Strategies for Success for Every Age in Retirement  

by Paula McMillan, CFP^®, CPA/PFS, CGMA, Wealth Advisor

Retirement is a significant milestone that evokes a mix of excitement and anxiety. The complexity of dates, rules, and options associated with government-sponsored programs and tax benefits can make the process more daunting. However, being aware of key milestones can help you make informed decisions and take full advantage of these opportunities. According to a study by AARP¹, nearly half of Americans do not feel prepared for retirement. In our experience this figure may be even higher, as many individuals, regardless of their wealth, express concerns about not having enough assets to retire comfortably. 

Ages 50-60: Focus on What You Can Control 

It’s important to acknowledge that both the things we can control and the things we can’t play a role in our financial outcomes during retirement. Unfortunately, many people spend too much time worrying about what they can’t control, instead of focusing on what they can. Here’s a breakdown to help you prioritize where to put your energy: 

What You Can Fully Control: 

• Current lifestyle spending: Keep an eye on your expenses and adjust where necessary. 

• Savings: Consistently save and invest for your future. 

• Identifying retirement goals: Clearly define your lifestyle goals for retirement and estimate the costs. 

• Asset allocation and location: Invest wisely, choosing the right mix of assets and the right types of accounts (e.g., taxable vs. tax-deferred). 

What You Have Some Control Over: 

• Duration of employment and earnings: Decide how long you work and strive to maximize your earnings. 

• Longevity: Make lifestyle choices that can impact your life expectancy. 

• Surplus spending: Manage expenses that are outside of your regular lifestyle spending. 

What You Can’t Control: 

• Market returns and inflation: These are beyond our control, but we can plan for them. 

• Tax policy and other laws: Stay informed, but know these are not in our hands. 

• Health care costs: While we can’t control costs, we can plan for them. 

Key Considerations for these Ages: 

• Maximizing Contributions: Accelerate savings efforts. Fully leverage tax-advantaged retirement accounts like IRAs and 401(k)s. Understand and utilize IRS catch-up contributions. 

• Debt Reduction: Aggressively pay down high-interest debts, including credit card balances and personal loans. Prioritize mortgage payoff to reduce future liabilities. 

• Investment Strategy: Review and rebalance the portfolio, reducing risk while maintaining growth potential. Consider asset allocation shifts. 

Strategies for Ages 50-60

• Catch-Up Contributions: Employ IRS provisions for those aged 50+ to make additional retirement account contributions. Maximize this opportunity. Contributions reduce taxable income, providing immediate tax relief. Understand the interplay with AGI limits for deductions and credits. 

• Retirement Planning: Develop a detailed retirement plan with a financial advisor. Set specific goals, estimate income needs, and create a budget. Project tax brackets in retirement. Consider Roth conversions during lower-income years to potentially reduce future tax liabilities on distributions. 

• Health Insurance: Review health insurance coverage and plan for retirement healthcare costs. Evaluate long-term care insurance. Understand the tax deductibility of health insurance premiums, including those for long-term care policies. 

• Tax Planning: Begin planning for the critical tax implications of retirement income which includes considering: 
  • Tax Location: Optimize asset location by holding tax-inefficient assets (e.g., high-turnover funds) in tax-advantaged accounts.  
  • Roth Conversions: Strategically convert traditional IRA or 401(k) assets to a Roth IRA to pay taxes now at potentially lower rates, allowing future tax-free growth and withdrawals.  
  • Marginal Rate Management: Consider strategies to manage your marginal tax rate, such as bunching deductions or deferring income. 

• Withdrawal Planning: Model potential withdrawal scenarios, considering sequence of return risk, and its impact on portfolio longevity. 

Ages 60-70: Plan for a Long Retirement 

The average life expectancy for a 65-year-old is 83 years of age. However, that is just an average. There is a 49% chance that at least one member of an age-65 couple will live to age 90. This goes up to 72% if both are non-smokers in excellent health². 

This means you may need to plan for a 30-plus-year retirement, especially if warranted by family history. In retirement, as a general rule of thumb, you will likely need to replace about 75%-80% of your pre-retirement annual income. And this does not factor in certain discretionary purchases you may wish to make — for example, second homes or support for your children as they begin their adult lives (e.g., weddings, first car and home purchases, etc.). 

Key Considerations: 

• Timing Retirement: Consider health, job satisfaction, and financial readiness. The decision to retire at 62 versus 70 significantly impacts finances. 

• Social Security: Optimize the start date for Social Security benefits. Understand the implications of claiming early vs. delaying. 

• Healthcare Costs: Plan for rising healthcare expenses, including Medicare and supplemental insurance. 

Strategies for Ages 60-70: 

• Social Security Maximization: Analyze various claiming strategies to maximize lifetime benefits. Coordinate with spousal benefits and consider the break-even point. Understand the taxation of Social Security benefits. Factors influencing taxable amount include provisional income. 

• Income Generation: Identify and diversify income sources (pensions, annuities, part-time work, investments). Optimize the tax treatment of each income stream. Consider qualified charitable distributions (QCDs) from IRAs if applicable. 

• Withdrawal Plan: Develop a strategy to make savings last, considering the “4% rule.” Focus on tax-efficient withdrawals. Prioritize withdrawals from taxable accounts first, followed by tax-deferred accounts, and finally tax-free accounts (Roth). 

• Medicare Planning: Enroll in Medicare at age 65 and review coverage options. Consider Medigap or Medicare Advantage. Understand the potential for high-income surcharges on Medicare premiums (IRMAA) and strategies to mitigate them. 

• Tax Planning: Begin to plan for RMDs. Use strategies such as QCDs to lower your taxable income. Stay abreast of changes to investment tax rules that might favor particular strategies. 

Ages 70-80: The Wisdom Years 

As you enter your 70s and 80s, retirement takes on a new meaning, filled with opportunities to reflect, enjoy, and continue to grow. This stage of life brings unique challenges and considerations, but with the wisdom accumulated over the years, you are well-equipped to navigate them. 

Key Considerations: 

• Managing Expenses: Closely monitor spending and align it with the retirement budget. 

• Relocation: Evaluate the living situation and consider downsizing, retirement communities, or relocating closer to family. 

• Required Minimum Distributions (RMDs): Comply with RMD rules from traditional IRAs and 401(k)s. 

• Healthcare Management: Plan for increasing healthcare costs and consider long-term care insurance. 

Strategies for Ages 70-80: 

• Investment Adjustments: Adjust the investment portfolio to more conservative investments to protect assets. Minimize capital gains taxes when rebalancing by utilizing tax-loss harvesting strategies.  

• Estate Planning: Update estate planning documents, including wills, trusts, and powers of attorney. Consult with an estate planning attorney to minimize estate taxes and ensure assets are distributed according to wishes. Consider gifting strategies. 

• RMD Optimization: Use Qualified Charitable Distributions (QCDs) from IRAs to satisfy RMDs while donating to charity. This is especially beneficial for those who do not itemize deductions. 

• Tax Planning: On an ongoing basis consider tax implications in all decisions, including: 
  • Monitor Tax Law Changes: Keep up to date with changes in tax laws that might affect retirees, such as changes to tax brackets, deduction rules, or capital gains rates. 
  • Refine Withdrawal Strategies: Adjust withdrawal strategies annually based on tax law changes, current income levels, and projected expenses. 
  • Charitable Giving Strategies: Advise on the use of Donor Advised Funds (DAFs) or direct donations of appreciated securities to maximize tax benefits while supporting philanthropic interests. 

Ages 80-90: Mid-Retirement 

As you navigate your 80s, the experiences you’ve accumulated throughout your life become a guiding light. By carefully managing your healthcare and maintaining a thoughtful spending plan, you can continue to lead a fulfilling and meaningful life. Embrace these years with confidence, knowing that your careful planning and wise decisions will help you enjoy the fruits of your labor and leave a lasting impact. 

Key Considerations: 

• Healthcare and Long-Term Care: Plan for potential long-term care needs and associated costs. 

• Income Stability: Ensure stable income to cover living and healthcare expenses. 

Strategies for Ages 80-90: 

• Spending Plan: Maintain a spending plan that aligns with the current financial situation. 

• Legacy Planning: Focus on charitable giving and inheritance planning. Utilize trusts or donor-advised funds to manage charitable contributions and ensure the desired legacy. Maximize tax benefits of charitable giving. 

• Tax Planning: For preservation of assets, keep this in mind: 
  • Review Estate Plans Regularly: Work with estate planning attorneys to review and update estate plans to reflect changes in family circumstances or estate tax laws. 
  • Gift Tax Planning: Advise on strategies to minimize gift taxes, such as annual exclusion gifts or using lifetime exemptions. 
  • Healthcare Cost Management: Help clients navigate healthcare costs and explore options for tax-advantaged health savings accounts (HSAs) if eligible. 

Ages 90-100: Build Your Legacy & Prepare Your Heirs  

Reaching your 90s and beyond is a testament to the rich tapestry of experiences you’ve woven throughout your life. These years offer a unique opportunity to solidify your legacy and ensure your heirs are well-prepared for the future. By focusing on longevity planning, healthcare management and regular estate reviews, you can maintain financial stability and peace of mind. Embrace this stage with confidence and pride, knowing that your thoughtful planning and decisions will benefit your loved ones for generations to come. Reflect on your journey, celebrate your achievements, and enjoy the fruits of a life well-lived. 

Key Considerations: 

• Longevity Planning: Plan for potentially living longer than expected and the associated costs. 

• Legacy and Inheritance: Ensure estate planning documents reflect current wishes. 

Strategies for Ages 90-100: 

• Healthcare Management: Maintain a comprehensive healthcare plan. Maximize tax benefits related to healthcare expenses. 

• Estate Review: Regularly review and update the estate plan. Communicate with heirs about estate plans to avoid misunderstandings. Ensure beneficiaries are properly designated on all accounts. 

• Tax Planning: For successful transfer of assets, be sure you consider: 
  • Final Tax Planning: Assist in final tax planning to ensure that the estate is handled efficiently and that heirs receive their inheritances with minimal tax implications. 
  • Basis Step-Up: Explain the concept of basis step-up for inherited assets and its potential tax benefits for heirs. 
  • Coordination with Estate Attorneys: Collaborate closely with estate attorneys to ensure that all tax-related aspects of estate planning are addressed comprehensively. 

How We Can Help 

Personalized Advice 

Stearns Financial Group offers one-size-fits-one, personalized advice tailored to your unique financial situation and retirement goals. Their expertise in various financial strategies ensures you receive the best guidance possible. 

Comprehensive Financial Planning 

Financial advisors provide comprehensive financial planning, covering all aspects of your retirement journey. They help you navigate complex financial decisions and create a roadmap for achieving your dreams. 

Ongoing Support and Monitoring 

Retirement planning is not a one-time event. Financial advisors offer ongoing support and monitoring to ensure your plan stays on track. They help you adapt to changing circumstances and make informed decisions. 

Stress Reduction 

Managing finances can be stressful, especially in retirement. Financial advisors can alleviate this stress by handling the complexities of financial planning, allowing you to enjoy your retirement with peace of mind. 

Conclusion 

Planning for retirement is a multifaceted process that requires careful consideration and expertise. By working with an advisor, you can more confidently navigate the stages of financial planning and achieve your retirement dreams. Our specialized strategies and personalized advice can help you preserve your wealth, create a lasting legacy, and live out your retirement dreams to the fullest. 

If you’re ready to embark on this journey, reach out to Stearns Financial Group and let us guide you towards a secure and fulfilling retirement. 

Sources:  

1. https://press.aarp.org/2024-4-24-New-AARP-Survey-1-in-5-Americans-Ages-50-Have-No-Retirement-Savings  

2. https://www.ssa.gov/oact/STATS/table4c6.html