For the past four years,
I’ve taught a class called Money After 70,
which describes over a dozen changes in the finances of septuagenarians (people
between 70 and 79 years old) and those who are older. Recently, a student requested
a new class specifically for octogenarians (people between 80 and 89 years old);
i.e., Money After 80. The class isn’t prepared yet but below are some
thoughts.
People age 80 and older
often face financial planning challenges that differ significantly from those they
encountered during the early years of retirement. Their emphasis often shifts from
“go-go” years spending, and perhaps continued employment, to preserving assets,
maintaining independence, managing health care costs, simplifying finances, and
ensuring a smooth transfer of assets to heirs.
Below are five key financial
planning issues faced by people age 80+:
Remaining Life Expectancy-
According to Social Security actuarial tables, an 80-year-old's average
remaining life expectancy differs by gender. An 80-year old man and an 80-year
old woman have an average remaining life expectancy of 7.6 years (age 87.6) and
9.2 years (age 89.2), respectively. Personal health status and lifestyle choices
can significantly impact these numbers, however. Some people live long enough
to become nonagenarians (age 90-99) and centenarians (age 100+).
Larger RMDs-
Required minimum distributions (RMDs) generally become larger as people get
older because retirees have fewer remaining years over which to withdraw their
retirement savings. Even if an IRA or 401(k) balance remains unchanged, the
percentage of a tax-deferred account that must be withdrawn increases each
year. For example, it’s 3.77% at age 73 and 4.95% at age 80. As retirees get
older, their age-based RMD divisor gets smaller, and their RMD withdrawal gets
larger.
QLAC Withdrawals-
A Qualified Longevity Annuity Contract (QLAC) allows individuals to use a
portion of their retirement plan savings to purchase deferred lifetime income. QLACs,
therefore, help protect against outliving assets by providing guaranteed income
later in retirement when other resources may decline. Under current rules, QLAC
payments must begin no later than age 85.
CCRC Entrance-
The average age of entrance into a Continuing Care Retirement Community (CCRC),
also called a Life Plan Community, is generally in the early to mid-80s. Most CCRCs
encourage residents to move in while they are still healthy, independent, and
able to participate fully in community life. A key financial planning
consideration is that many CCRCs require a substantial entrance fee (often
hundreds of thousands of dollars) plus monthly fees.
Housing Changes-
Many octogenarians make key decisions related to their housing. For example, if
they decide to “age in place,” they install accessibility improvements such as
ramps, grab bars, stair lifts, walk-in showers, and wider doorways. If they are
widowed or become more frail, they might opt to move closer to a family support
system or into an assisted living facility. The average age of entry into
assisted living in the United States is generally in the mid-to-late 80s.
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.
