Linda Wood Rondeau

Having the Prime of My Life

Money Matters: Financial Wellness Tips for Seniors
Thursday, November 9, 2023 by Ashley Nielson

 

 

During your golden years, financial stability and well-being play a major role in ensuring you remain financially comfortable. Financial management during this stage of life grows even more critical as you near the transition into retirement. Unfortunately, most people face increased financial challenges into their senior years. Whether it’s ensuring your expenses remain covered, your assets protected, or ensuring your estate plan is executed after you’re gone, remaining informed and prepared is crucial. To empower yourself during this stage of life, here are some tips for navigating the financial landscape in your golden age.

Cover your expenses

Assuming you’re retired, you want to ensure your non-negotiable expenses (e.g., mortgage payments, car insurance, groceries, and other necessities) are covered by fixed-income streams. This means using safe, conservative assets like pensions, social security, or other forms of guaranteed income to cover your mandatory expenses. Once you have those bases covered, this allows you to discretionarily spend down in the places you choose. 

Establish a cash-reserve

In retirement, most people pull from invested assets that have been built through their professional lives. While this is a good thing, it also means you’re subjecting yourself to market-based risk. Nobody wants to sell an asset at a loss. Seniors living off of assets should have a pool of safe, non-market-correlated dollars that they can pull from when their other assets have gone down in value. This way, seniors only participate in the upside of their investments, further prolonging the lifetime value of their assets. In layman's terms, this essentially means hoarding cash in a safe place, such as certificates of deposit, permanent life insurance, gold coins, or a high-yield savings account. Consider what's most efficient for you from an inflation and tax perspective with the help of a financial advisor. 

Active portfolio management 

Most retirees will have a 60–40 portfolio allocation for most retirement accounts. Long-term, you should ensure, either on your own or with the assistance of an asset manager, that your portfolios remain consistently allocated. This means actively rebalancing your portfolios or choosing funds that have this feature automatically included. This ensures your retirement assets don’t stray too far off course from a risk-tolerance perspective. 

Tax-loss harvesting

Another thing seniors should consider is the concept of tax-loss harvesting. Inevitably, your assets will depreciate in given market cycles. To harvest tax losses, you sell your assets at a loss, and through this, you generate tax credits. This credit is determined by the delta between your cost basis and the value of the underlying asset sold. This credit can be applied to future capital gains taxes and income taxes up to a certain limit.

Immediately after selling and generating the credit, you want to re-purchase the same asset class to capture the inevitable upside, but you don’t want to repurchase the same asset you just sold. The IRS designates this rule specifically by stating “if it is substantially different,” meaning, for example, selling Coca-Cola and buying Pepsi. This is a great way to reduce your retirement taxes and capture market upside as markets return. 

Estate planning

While no one wants to think about dying, it's important to prepare for this fact of life if you haven’t already. The purpose of estate planning is to ensure your assets are passed on to the next generation without government interference or taxation. Without proper estate planning, all of your life’s assets are subject to probate courts, Uncle Sam, and even suitors and may not go to the places you planned or wanted them to go, such as your family and loved ones. When estates are sent through probate court, it becomes a long and enduring process that your family is responsible for managing, sometimes even years before your beneficiaries see a dime. 

When conducting estate planning, you must ensure you have both a notarized will, ordaining your desires upon death, as well as a trust. Many kinds of trusts are available, so you need to guarantee you have the right one for your specific financial situation. Estates under 12.5 million as individuals or 25 for marriages are much easier to plan for. 

However, if you are lucky enough to have an estate beyond these thresholds, the above recommendations should be mandatory because estate taxes are hefty and are due very soon after death. Many otherwise wealthy families may be put in a vulnerable position where they need to fire-sell their assets to pay these taxes, making them worse off from a financial perspective. 

Outsource to a professional 

Now, if some of the above information is hard to grasp, we don’t blame you, but it may be in your best interest to bring in the professionals. There are thousands of quality financial advisors, accountants, and attorneys who are well-versed in financial wellness practices and planning for seniors. When it comes to protecting your legacy, peace of mind is priceless, and with the right help on your side, it’s worth every penny. 

When outsourcing to a financial professional, ensure you get the right fit. Look for an advisor who specializes in retirees or pre-retirees, as they’re going to have more experience when it comes to asset management, behavior coaching, and legacy planning than an advisor who specializes in the financial situations of younger people. Additionally, look for a team that provides these services in-house, evoking the help of entire teams, namely a CPA, CFP, and tax attorney, when necessary, so you don’t have to go on an entire hiring spree to get what you need. 

Protecting your financial wellness later in life

Hopefully, by the time you’ve retired, you’re already well prepared. However, hindsight is always 20/20, and even if you didn’t prepare as much as you should, there are still ways to ensure your financial health later in life. As we conclude this expert take on money matters, we hope you embrace these strategies or turn to a team of professionals if you aren’t well-versed in this complicated topic. 

Remember, the best way to empower yourself as a senior is through knowledge, and hopefully, after reading this article, you will have an outline of what you need to do. With financial security and peace, you can focus on what truly matters: living a fulfilling, comfortable, and enjoyable retirement. 

ABOUT ASHLEY NIELSEN

Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a freelance writer who loves to share knowledge about general business, marketing, lifestyle, wellness, and financial tips. During her free time, she enjoys being outside, staying active, reading a book, or diving deep into her favorite music. 

 


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