Wealth Management for Seniors: What You Need To Know
Seniors Have Specific Wealth Management Needs: Here’s What To Look For
If you’re a senior looking for a wealth manager or financial advisor, there are a variety of considerations to think about. These include your retirement income needs (including social security considerations and retirement account withdrawals), your portfolio, how best to manage your taxes, how to deal with unexpected health expenses, estate planning, and whether you want to leave a legacy to your heirs. A good wealth manager for seniors will consider all of these and create a comprehensive financial plan so that you can live out your golden years with financial peace of mind.
As previously touched upon, this article will examine what seniors need from a good wealth manager and what they should look for when choosing one. We’ll cover a variety of core topics, including:
What to look for in a wealth manager
Investing strategies
Budgeting and withdrawal planning
Required minimum distributions and tax planning
Leaving a legacy
Planning for healthcare costs
Creating a comprehensive financial plan
What To Look For In A Wealth Manager for Seniors
A good wealth manager for seniors has specific experience dealing with retirement strategies and other considerations that may impact older adults. In general, it’s a good idea to find a financial advisor who’s also a fiduciary-- meaning that (legally) they must put your needs above any other financial considerations. Many great advisors have additional certifications, such as being a Certified Financial Planner (CFP), though this isn’t a requirement to be a great financial advisor. In addition, before choosing a new wealth manager, you should always check them and their firm out through FINRA BrokerCheck to ensure that they hold the proper licenses and that they don’t have any violations or complaints on their record.
Investing Strategies for Seniors
A good wealth manager for seniors will help them construct a conservative portfolio that will provide sufficient retirement income without significant volatility or too much risk. In general, seniors will want a portfolio with a considerable bond allocation. While the 60/40 stock allocation method works well for many retirees, it may be too risky for older seniors.
Some advisors and wealth managers use the “rule of 120” to determine a proper stock/bond allocation, and while this is just a rule of thumb, it can be a good yardstick to see where your portfolio currently is. This rule involves subtracting your age from 120 to determine the proper asset allocation.
For instance, if you are 70 years old, you may want to have a portfolio that consists of 50% stocks and 50% bonds (120-70 = 50), whereas if you’re 75, you might want a portfolio that consists of 45% stocks and 55% bonds. However, this can depend on your overall net worth and risk tolerance. High net-worth individuals may be able to tolerate more portfolio volatility. They might want to leave more to their heirs, meaning they might want a higher percentage of stocks (perhaps staying at 60/40). In contrast, those with a lower net worth and less interest in leaving an inheritance may want to stay with a more conservative portfolio allocation.
It’s also important to consider what stocks and bonds your wealth manager wants you to invest in. Typically, the safest type of bonds are in the U.S. Treasury Bonds, issued and paid by the federal government. Shorter-term Treasury bonds are safest, as the value of these fluctuates much less than longer-term Treasury bonds.
There are also things to consider when it comes to stocks. While investing in the S&P 500 via ETFs may be great for younger individuals, it can be highly volatile, so seniors might wish to invest in less volatile (or defensive) sectors, such as pharmaceuticals, energy, or consumer goods. This can be done either through a wealth manager who chooses individual stocks in undervalued companies in these potentially “safer” sectors or through the use of sector ETFs, which contain broad indexes of stocks in specific sectors.
In addition, some wealth managers may also recommend allocating a small part of a retirement portfolio to gold, either through gold ETFs or potentially investing in companies in the gold sector, such as gold mining firms (which can also be done through individual stocks or ETFs).
Budgeting and Retirement Withdrawal Planning
Unless you’re still working full-time, you’ll likely be on a fixed income during retirement. You’ll want to ensure your wealth manager analyzes your portfolio and finances to ensure you’ll have enough to live well-- even if you live to 100. Therefore, your wealth manager or advisor will want to look into both your expenses (and adjust them for inflation), as well as your sources of income, such as social security, pensions (if you have them), and your portfolio, including cash savings, taxable brokerage accounts, retirement accounts, and any other sources of income, such as life insurance or annuities. Typically, most wealth advisors will follow the 4% rule, meaning you should withdraw no more than 4% of your savings and retirement portfolio each year. However, this may vary based on your financial situation.
Required Minimum Distributions and Wealth Management Tax Considerations
Most retirees will have some (if not much) of their assets in retirement accounts, such as IRAs or 401(k)s, and, at a certain age, investors are required to start withdrawing from these accounts and paying taxes on their withdrawals (except for Roth IRAs, as individuals pre-pay the taxes on these assets). Other retirement accounts that require withdrawals (referred to by the IRS as required minimum distributions or RMDs) include 403(b) plans, 457(b) plans, and profit-sharing plans.
According to the IRS: “You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).”
The rules regarding these withdrawals can be complex, so it’s essential to have a wealth manager who understands how they work and who can work with your accountant to help minimize your tax burden.
Leaving a Legacy For Your Family
In addition to supporting yourself during your retirement years, you may wish to leave something to your heirs, and a good wealth manager can help you create a plan to do this. Generally, you’ll also want to work with a good estate lawyer to set up your will in a simple manner so that your heirs won’t have to go through the legal system to split up your assets, as this can cause unnecessary headaches and even family conflicts.
For those with a large amount of assets, setting up one or more trust funds for your beneficiaries may also be ideal, which is something you should likely discuss with your wealth manager as early as possible.
Planning for Healthcare Costs During Retirement
Healthcare costs are another important consideration for seniors in retirement, especially when it comes to particularly expensive costs, such as long-term care, since, according to U.S. government data, 70% of adults 65 and older end up needing long-term care at some point in their lives. Some people intend to pay for this using long-term care insurance (LTC insurance). However, this can be prohibitively expensive unless the policy is purchased when the recipient is relatively young and healthy. Unfortunately, long-term care is often more expensive than people expect.
For example, according to the National Council on Aging, as of 2023, nursing home care costs $7,908 for a shared room and $9,034 for a private room. That’s more than $100,000 per year, which can take a severe toll on many people’s finances. Home healthcare can be even more expensive, with around-the-clock care often costing more than $20,000 per month or more than $240,000 per year, meaning that these potential costs should be factored into anyone’s financial plan-- regardless of age and health.
Creating a Comprehensive Financial Plan for Retirement
As we’ve discussed, there are a variety of wealth management considerations for older adults, including what to look for in a wealth manager, what to invest in, retirement distribution and tax strategies, leaving a legacy, and healthcare costs. A great wealth manager or financial advisor will be able to work with you and your family to create a comprehensive financial plan that takes all these into account, helping you retire and live your best years with financial peace of mind.
