Essential Financial Planning Tips for Seniors

Retirement is a significant milestone that brings about a new phase of life, filled with opportunities and challenges. As you transition into this stage, it’s crucial to have a robust financial plan to ensure you can enjoy your retirement years comfortably and leave a legacy that aligns with your values. Here are seven essential financial planning tips for seniors to help you navigate this journey.

Update Your Financial Goals

Your financial goals will likely evolve once you retire. You might want to travel more, move to a new home, retire abroad, take up new hobbies, or provide financial support to your children or grandchildren. The first step is to clarify these goals and estimate their costs. This will help you create a plan to draw on your nest egg efficiently. Consulting with a financial advisor can provide personalized guidance and help minimize your tax burden.

Clarify Your Costs

Understanding your expenses is crucial, especially if you’re on a fixed income. Your costs can be divided into essential and discretionary spending. Essential costs include rent or mortgage, utility bills, food, debt payments, phone bills, gas, and other necessities. Discretionary spending covers non-essential expenses like dining out, shopping, golfing, and traveling. Additionally, consider any financial goals and potential increases in housing and medical costs. Evaluating all these factors can help you clarify your current and future expenses. If your nest egg is stretched thin, you may need to reevaluate your costs or adjust your goals.

Plan for Health Care Expenses

Health care costs can be a significant expense in retirement. According to Fidelity Investments, the average 65-year-old retired couple may need around $315,000 for health care costs. Medicare, available for those 65 and older, doesn’t cover everything, leaving you responsible for premiums, deductibles, copays, and other out-of-pocket costs. If you retire before you’re eligible for Medicare, your expenses could be even higher. Long-term care, if needed, can also be a substantial expense. Utilizing a health savings account (HSA) for tax-free withdrawals to cover qualified medical expenses and consulting with a financial professional can help you find creative ways to manage these costs.

Manage Your Budget

Budgeting is essential, especially if you’re on a fixed income or nearing retirement. Start by listing all your income sources, such as 401(k)s, IRAs, pensions, Social Security benefits, annuities, cash value from permanent life insurance policies, and passive income from investments. Be strategic about how you draw on your savings to avoid significant tax liabilities. Look for senior discounts on car insurance, travel, groceries, restaurants, and more. Using a budgeting plan or app can help you live within your means.

Don’t Forget About Taxes

Withdrawing money from tax-deferred retirement accounts like 401(k)s or traditional IRAs is considered taxable income, and large distributions could trigger substantial tax liabilities. Diversifying your income in retirement can help you keep more of your money. Combining funds from tax-deferred accounts and Roth accounts, which offer tax-free withdrawals, can be beneficial. Remember, you’ll need to start taking required minimum distributions (RMDs) from tax-deferred accounts beginning at age 73.

Tax Perks for Seniors

– **Additional standard deduction:** In 2024, single taxpayers get an extra $1,950, and married couples filing jointly get $1,550.
– **Social Security tax exemption:** Individual taxpayers don’t pay federal taxes on earned income if the total is $25,000 or less. For married couples filing jointly, the threshold is $32,000.
– **Elderly tax credit:** Taxpayers 65 and older meeting certain income requirements can secure a tax credit between $3,750 to $7,500.

Update Your Estate Plan

Estate planning involves organizing your assets and making a plan for their distribution after you’re gone. This may include updating your will, choosing powers of attorney, and establishing trusts. A will communicates your final wishes and names an executor to distribute your assets. Powers of attorney allow someone else to make medical and health care decisions on your behalf if you become unable to do so. Trusts can help your loved ones avoid the probate process and allow you to distribute assets during your lifetime if you choose.

Avoid Scams That Target Seniors

Seniors are often targeted by scammers, and fraud losses can be devastating, especially for those on a fixed income. In 2023, the average victim of elder fraud lost over $33,900. Scammers often impersonate trusted individuals. To avoid scams, never share personal information with unsolicited contacts, protect your accounts with multifactor authentication, and take time before responding to suspicious contacts. If you fall victim to a scam, report it to the Federal Trade Commission (FTC) at ReportFraud.ftc.gov.

The Bottom Line

Financial planning doesn’t end when you reach retirement. Budgeting, paying taxes, and working toward financial goals are lifelong habits. Seniors have unique planning needs that may require the help of a financial professional. At O1ne Mortgage, we understand these needs and are here to help you navigate your financial journey. For any mortgage service needs, call us at 213-732-3074. Our team of experts is ready to assist you in achieving your financial goals and ensuring a comfortable retirement.