Retirement Planning In Your 70s

A decade ago, I couldn’t spell septuagenarian, and yet now, at 72, I am one. A decade ago, I thought I would retire in my 60s. And yet here I am working in my 70s. The reality is that some of us don’t retire until we are into our 70s or even 80s. Some never plan to retire. With improved healthcare and the advent of jobs that don’t require physical labor, this group of late retirees is growing. According to the most recent data from the Bureau of Labor Statistics, 5.8% of the labor force is age 70 and older, which includes the current U.S. president.

The challenge is that so much of the retirement income planning literature deals with people who are retiring in their 60s. It’s almost a given to see an article begin “assuming you retire at age 65.” But the planning steps for retiring in one’s 60s are different from waiting until one’s 70s to retire. For example, retirees often believe the “4% rule,” limits them to taking 4% of their retirement portfolio each year as income. One of the key assumptions with this rule of thumb is that there will be a 30-year period in retirement. Realistically, however, should a person retiring at age 75 assume they will live 30 years — to age 105? Because of their late retirement age, shouldn’t they be able to withdraw more than 4% of their retirement portfolio each year without fear of exhausting their savings?

There are changed retirement decisions that apply to those waiting to retire until their 70s. Different retirement dates call for different retirement planning.

What You Don’t Need To Do

Let’s start by checking off the two big retirement decisions: when to file for Social Security and when to begin Medicare. The latest logical age to elect Social Security is 70, so that tough decision should be largely over with. And the magic age for signing up for Medicare is 65. Even if you have continued your healthcare coverage with your employer, you’ve probably at least filed for Medicare Part A. That said, when you’re ready to retire, you should still study your Medicare options. If you’ve been saving money by utilizing Medicare Advantage or continuing coverage through your employer’s HMO, the question arises whether you plan to travel, snowbird or otherwise spend a lot of time out-of-town once you retire. If your retirement plans include a lot of travel, you may want to consider switching to Original Medicare with a Medigap plan in order to obtain better away-from-home healthcare coverage.

Another task you can check off is accumulating wealth. If you’re in your 70s, you can focus more on working with what you have in retirement savings than battling with how much to save. Hopefully by the time you’re in your 70s, you’ve created your nest egg, and now you need to decide which egg to crack first. For example, as you retire in your 70s, your issue is not how much to put in your 401(k), but instead how much to convert to a Roth IRA and how this will be affected by RMDs.

If you’re retiring in your 70s, it’s less likely you’ll be trying to continue building your wealth by working part time. So, with your investment portfolio, the accumulation phase is past you, and you can now start addressing decumulation. Your focus shifts from growth to income.

Withdrawal Strategy

Traditional rules of thumb, such as the 4% rule, can largely be thrown out — or at least modified. The simple reality is that you’re likely to experience a shorter time in retirement than your counterparts who retired in their 60s, so the math is different. Likewise, you can view other issues, such as the sequence of return and inflation risks, through a different lens.

No matter what age you retire, having a poor sequence of investment returns early in your retirement can harm your long-term prospects for meeting your lifetime income goal. For this reason, many experts recommend modifying portfolio allocations to be more conservative a few years before and after one’s retirement date. However, by retiring in your 70s, you’re dealing with a shortened retirement period, and you may not have to modify your portfolio allocation as much — if at all. By then you may have more Social Security income, less or no mortgage payments, and there may be other outside forms of income or savings available to carry you through a market downturn. Similarly, while a bad bout of inflation early in retirement can harm your long-term spending power, a shortened retirement span lessens the time for the erosion effect of inflation to compound. Further, as we transition from the go-go years of the 60s to the slow-go years of the 80s, spending tends to lessen. If you retire in your 70s, the spending habits of your 60s are past you.

RMDs Become Real

Required Minimum Distributions have recently become less of a retirement planning issue because, as a result of SECURE 2.0, they now don’t kick in until age 73. If you’re retiring in your 70s, however, RMDs are a very current planning challenge. Because you’ve been employed, and consequently in a higher tax bracket than a retiree, a big decision is whether to take your first RMD in the year you turn 73, or wait until April of the next year and take two RMDs. The tax consequences of this decision will vary significantly depending on your retirement age and your marginal tax rates before and after retirement.

Another advantage of a later retirement is that you’re likely in a stronger position to estimate your retirement income needs. You probably have a better feeling for your longevity prospects, and you can better model your expenses going forward. The challenge is that RMDs can force you to take taxable income that you don’t need and would prefer to defer. The good news is that there are alternatives. Your early 70s may be an ideal time to both push off your RMDs and increase your later-in-life income by purchasing a Qualified Longevity Annuity Contract (or QLAC). Or, you may consider using a Qualified Charitable Distribution to donate to your favorite charity in a tax-efficient way. Compared to how these strategies are merely ideas while you’re in your 60s, they are both now opportunities as you retire in your 70s.

Product Considerations

A popular retirement planning investment has been the target date fund. It is an investment account that automatically adjusts over the years as the investor approaches a specific date, such their retirement date. These funds have a set-it-and-forget-it aspect in that they automatically rebalance stock and bond investments over time. If your target date fund was aimed at retirement, once you are in your 70s it may have lost its planning value. It may be time to switch to a different set of stock and bond holdings.

Income annuities and annuity income riders may take on a new relevance when you retire in your 70s. For one thing, you may have a better idea of your life expectancy versus general population life expectancies. If things are looking good for your lifespan and you want to lock in a lifetime income, a single premium immediate or deferred income annuity may be a good supplement to your retirement income plan. While pricing varies with interest rates, as you start living into your 70s, the pricing of these products is more based on average life expectancies than on prevailing interest rates.

You may own a deferred annuity that has a guaranteed lifetime withdrawal benefit. The GLWB rider ensures that you receive a minimum lifetime payment that essentially counteracts any losses in your subaccounts. As you age, the contract guarantees a higher and higher income from your annuity. For example, a GLWB rider may guarantee that if you begin your income at age 65 it will pay, say, 4.75% of your balance each year. But if you begin at age 75, it might guarantee 5.5%. You’ve likely been paying for this guarantee in your annuity, so don’t forget to use it as part of your retirement plan.

A New View Of Your Housing Options

Our risk of incurring frailty and long-term care issues increases as we age. Once you are in your 70s, it is wise to consider these as very real potential risks, not just a distant concern. Frailty can affect your mobility and long-term care issues affect your activities of daily living. These risks can directly affect your housing decisions in retirement. For those who retire in their 60s, the housing decision is often framed in terms of “do you want to live in-place or do you want to downsize?” In later years, the housing option may have more immediacy in dealing with frailty and need for long-term care. You may choose to live in-place, but because of your age you might consider whether you will need to update your home to make it more age friendly. Examples include moving the master bedroom to the first floor, replacing knobs with handles, and installing tall toilets.

Or you may choose to move to a place that better accommodates aging. To avoid social isolation and find individuals with similar issues, your 70s may be a good time to move to a 55+ Active Adult Community. Well known examples include Sun City and The Villages. These planned communities often offer senior services and make it easier to get around. You may take it one step further and investigate moving into a Continuing Care Retirement Community. These facilities are thought of as life care communities because they offer a continuum of care as we age, potentially from independent living to assisted living to skilled nursing.

In your intention is to work into your 70s, housing changes should be part of your retirement planning because some of these housing options may not be immediately available. Particularly with CCRCs, they require the applicant to be in modestly healthy condition, and they often have waitlists that can last months or even years.

Plans For Your Next Chapter

When Jimmy Carter left the presidency, he was age 56. He had almost a half century to be a great past president. Joe Biden is age 82 as he leaves the presidency. Simple actuarial realities dictate that Biden will not have as much time to do great things in retirement as did Carter. Age influences what we do in retirement, and we should apply different planning principles for different retirement ages.

Although it varies with every individual, if you’re retiring in your 70s, you are more likely to be going into full retirement than someone who is in their 60s. Putting it bluntly, retirement may be your last chapter more than your next chapter in life. This means that you will want to address — upfront — issues pertaining to being older. As you retire and lose the community and stimulation that comes from employment, you may be worried about age-related issues such as social isolation, boredom, and elder abuse. These sound like unpleasant topics to address, but you’ve had the good fortune of working through your 60s, and it is now time that your retirement plan includes addressing the realities of aging.

Retiring in your 70s is a great accomplishment. You’ve locked in your Social Security and Medicare benefits, you have a better handle on your health and finances, and you can retire knowing you’ve maximized your human capital. If you’ve done your planning, the event we call retirement should go more smoothly than if you had retired earlier. So, address the issues that come with a later retirement … and go out and enjoy yourself.