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Money & Policy

5 Best Money Strategies for People 65 and Up

Give yourself this 5-point financial checkup



(This article appeared previously on Marketwatch.com

A small but growing number of people say they’ll never retire, but whether you plan to stop working full-time at 62, 72 or never, age 65 remains an important milestone for several reasons — especially Medicare. Here's how to give yourself a 5-point money checkup:

 
1. Assess your Medicare options and review your plan. Contrary to a common misperception, the Affordable Care Act (also known as Obamacare) does not affect Medicare beneficiaries. But what many people don’t realize is that signing up for Medicare at 65 can be a fairly time-consuming process. You have to choose among a variety of plans and making the wrong decision can lead to substantially higher costs. So be sure to choose the most cost-effective plan for you, given your particular health and prescription-drug needs.
 
The good news is you can change your plan each year during Medicare’s open enrollment period. (Read more about Medicare’s open-enrollment season.)

(MORE: 4 Mistakes to Avoid When Enrolling in Medicare)

 
“Medicare has complex rules, and you should do homework to find out how they apply specifically to your enrollment needs and options, including whether it makes sense to enter the program at 65,” said Debra Whitman, AARP’s executive vice president for policy, strategy and international affairs, in a recent blog post.
 
If you’ve already claimed Social Security, you’ll be automatically enrolled for Medicare Parts A and B, Whitman said. If you’re delaying Social Security, then you’ll need to initiate your Medicare on your own.
 
“If you are beyond 65 and getting health insurance from your own or your spouse’s employer, you can probably delay Medicare enrollment until that employment ends, without risking late penalties,” Whitman said. If you’re unsure about when to enroll, try calling Social Security at 800-772-1213.
 
Even if you’ve been a Medicare beneficiary for awhile, take time once a year to review your plan. Whitman said she goes online every Thanksgiving to check that her father-in-law’s plan is still the best deal for him; she saved him $400 this year by switching to a lower-cost plan.

(MORE: What to Do If Your Doctor Won't Take Medicare)

 
“I type in all of my father-in-law’s drugs and his favorite pharmacy to make sure there aren’t really any changes from his perspective and then I just do a cost comparison,” she said. “I really encourage people to check each year. The price increase can go up substantially over time.”
 
Check out the Medicare.gov page if you’re just getting started with Medicare.
 
2. Revisit your retirement plan. Are your finances on track? The only way to find out is to review your written retirement plan (and, if you don’t have one, to create one).
 
One common problem for retirees who don’t have an up-to-date plan: they’re so worried about running out of money that they fail to enjoy their retirement.
 
“A lot of people retire and they’re afraid of spending their money, so they hoard it,” Jeff Gorton, a CPA and certified financial planner in Oklahoma City, told me when I spoke with him about written retirement plans in October. 
 
You don’t necessarily need to visit a financial planner to come up with a plan, though the right expert can make the process easier, particularly when it comes to choosing which accounts to pull income from first.

(MORE: 5 Best Money Strategies for Boomers)

 
At its simplest, your plan simply details your income and expenses. And don’t worry so much about income that you ignore your expenses. Check out this story on a cheapskate’s guide to retirement saving — a useful read for retirees as well as those still saving for retirement.
3. Evaluate your retirement account distribution method. While you’re taking a look at your written retirement plan, consider the method by which you’re pulling money from your retirement accounts. One common rule of thumb is the 4 percent rule — you pull out 4 percent a year, every year — but there’s plenty of debate about how appropriate that rule really is.
 
One alternative: a method that entails making adjustments based on your portfolio’s performance. “We advocate a dynamic distribution method,” said John Nersesian, managing director for Nuveen Investments, in Chicago.
 
“Dynamic distribution means you don’t just pick a number, close your eyes and stick with it,” he said. “You have to be willing to make adjustments along the way, adjustments that reflect the change in the market environment.”
 
Why is this so important? “When you take out more money from a portfolio that has declined sharply in value, that’s what destroys retirement portfolios,” Nersesian said.
 
“If your portfolio value has declined, you have to come up with some rules, guidelines and sacrifices that reflect that,” he said. “Have a plan. Don’t just take out money randomly. And be willing to modify [your plan] to reflect a change in market environment.”
 
4. Create and review your estate plan. Have you made plans for divvying up your estate after your death? In addition, you need to prepare for the possibility of becoming incapacitated and unable to handle your financial affairs.
 
You’ll need a will, possibly one or more trusts, a durable power of attorney so a trusted friend or family member can take care of your finances should you become incapacitated, a durable health-care power of attorney for medical situations and a living will for your end-of-life wishes. 
 
That’s not all. Start talking to your family about family keepsakes and heirlooms. These items may not have much monetary value, but if you don’t make plans for sharing them, you risk your family devolving into conflict over these items. 
 
Another keepsake to consider: your family’s history. Whether it’s embodied in stories or photographs, make a point of talking with your family about your history and your values — before it’s too late.
 
Also, some people create “ethical wills,” documents that aren’t legally binding but that do convey a sense of your hopes and dreams for your family. 
 
5. Don’t neglect your tax planning. Estate planning is closely linked to tax planning. For example, consider a gifting strategy to reduce your estate’s tax hit. You can give up to $14,000 a year to an unlimited number of people, without a gift-tax hit.
 
“A grandparent may decide to put $14,000 each into their grandson or granddaughter’s 529 [college-saving] plan,” Nersesian said. “There’s no gift tax, no reduction in their estate tax exemption and they’re funding a 529 plan that will grow tax-free for their grandkids.” Read more about the gift tax on this IRS.gov page.
 
Another tax strategy to consider: Managing how and when you receive income. That can affect the taxation of your Social Security benefits and, potentially, the size of your Medicare premium. Also, read this Medicare.gov page for information on what income level will trigger higher Part B premiums.

Andrea Coombes is a personal-finance writer and editor in San Francisco. She's on Twitter @andreacoombes.

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