Wednesday, July 13, 2022

A Mid-Year Financial Check-Up for Older Adults

I recently wrote a blog post about doing a mid-year financial check-up in early July so you have six months to work on planned action steps. In this post, I continue the conversation with specific action steps for older adults.

Below are ten additional action steps, in addition to those shared previously, that specifically apply to people age 60+:

¨   RMD Withdrawals- Required minimum distributions (RMDs) are required starting at age 72. If you are “of age” and have not yet taken your 2022 RMD, consider doing so soon- in one or more “installments”- to avoid the year-end rush. Simply divide the December 31, 2021 balance in each of your tax-deferred accounts by the appropriate age divisor in the Uniform Lifetime Table to determine the minimum amount (which is taxable income) that must be withdrawn. 

   Some affluent taxpayers age 60 to 71 may decide to start taking withdrawals from their tax-deferred accounts before age 72 to avoid having to take larger taxable withdrawals from larger account balances later. 

¨   RMD Planning- As I wrote in my book, Flipping a Switch, there are three things that older adults can do with RMD withdrawals: spend the money, re-save or invest the money (minus income tax payments) in a taxable investment account or Roth IRA (if qualified), and make gifts to people and/or charities. Also be sure to adjust tax withholding for RMD withdrawals using quarterly estimated tax payments to the IRS or tax withholding by the retirement plan custodian. Before RMD money is withdrawn in 2022, develop a plan for what to do with it.

¨    Annual Cash Withdrawals- Many older adults use RMD calculations as a default metric to determine annual cash withdrawals from retirement savings accounts. Whatever the math calculation says is the amount that they withdraw. Other people have a specific “number” based on the 4% rule or household cash flow and budgeting projections. Whatever method is used to determine withdrawals, mid-year is a good time to make sure that everything is on track.


¨    Philanthropy Planning- According to Philanthropy Roundtable, “people are generally more philanthropic toward the end of their lives, when they tend to have more savings, time, and motivation to help others.” Giving peaks at ages 61 to 75. Mid-year is a good time to assess 2022 giving to date and remaining planned gifts for the year. Use the Charitable Giving Budget Worksheet to identify high, medium, and lower priority charities and planned gift amounts.


¨    Medicare Planning- Open enrollment for Medicare is October 15 to December 7 each year. Older adults who are unhappy with their insurance coverage should start the planning process now. While specific information about next year’s plans will not be available until October, the next three months can be spent learning more about Medicare coverage and perhaps consulting with a SHIP (a.k.a., SHINE in some states) representative to answer questions.


¨    Fraud Safeguards- It is an unfortunate fact of life that older adults are scam targets. On average, they have more accumulated wealth than younger generations. In addition, they are often more reachable and trusting and diminished capacity is a factor for some. Take the next six months to set up fraud safeguards such as two-factor authentication on all of your financial accounts, text notifications for account withdrawals, and a digital assets inventory.


¨    Deals and Discounts- In these inflationary times, everyone needs all the price breaks they can get on goods and services. Older adults may be leaving some money on the table by not taking advantage of deals and discounts that they qualify for and are unaware of. Take the time to review this list of “senior discounts.” Then, make a list of planned purchases for the remainder of 2022 and discounts available for each one.


¨    IRMAA Tax Avoidance- Project 2022 income now to see if it is- or could be- close to income ranges for income-related monthly adjusted amount (IRMAA) tax, a Medicare premium surcharge for higher-income older adults. There are five different tiers of IRMAA tax with a two-year look-back period (i.e., 2022 income will determine 2024 IRMAA). If you are close to one of the income range breakpoints, consider strategies to reduce adjusted gross income (e.g., Roth IRA conversions, postponed capital gains, and qualified charitable distributions).


¨    Downsizing and Simplification- If this has been on your financial “to do” list for a while, now is a good time to get started. While the summer and early fall weather is nice, hold a garage sale or two or sell items at a neighborhood flea market. Another option is to gather up items and donate them to a thrift shop. If financial records need some organization, pruning, or shredding, start now so they are good shape by year-end.


¨    Tax-Saving Strategies- Certain tax-saving moves require time and a series of process steps. Don’t wait until the end of the year when you, and the financial professionals who will assist you, are rushed and pressed for time. Start planning now at mid-year. Examples include qualified charitable distributions (QCDs), donor advised funds, Roth IRA conversions, and tax loss harvesting to mitigate capital gains on investments.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.



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