Investing and Protecting your Assets

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A Senior’s Guide to Investing and Protecting Your Assets

For most seniors, two financial concerns stand above all others: the fear of outliving their money and the fear of being unprepared for a long-term care crisis. Navigating retirement requires a shift in financial strategy, focusing on protecting what you have built. Two areas that require special attention are annuities and the management of your qualified retirement accounts.

The Annuity Trap: Why Liquidity is King for Seniors

Annuities are often marketed to seniors as a safe investment that guarantees income. However, for most seniors who do not have long-term care insurance, annuities can be a dangerous trap. These complex contracts typically require you to give up control of your money for a long period in exchange for that guarantee.

The biggest risk is the loss of liquidity. When a long-term care crisis hits, you need immediate access to your funds to pay for care, which can cost $7,000 to $10,000 per month. If your money is locked in an annuity, you will face steep surrender charges to get it back. This lack of access can be devastating when you need to privately pay for care while navigating the complex process of qualifying for long-term care benefits like Medicaid or the VA Pension.

Strategic Thinking for Your Retirement Accounts (IRAs, 401(k)s)

Your retirement accounts are a powerful tool, but they must be managed proactively, not just left on autopilot.

Go Beyond the Required Minimum Distribution (RMD)

Once you reach age 73 (the current RMD age), you are required to start taking minimum distributions from your traditional retirement accounts. However, only taking the minimum may not be the most tax-efficient strategy. Your retirement account is meant to be used for your retirement. A smarter approach is to coordinate your withdrawals with your tax situation.

  • Match Withdrawals to Deductions: If you have significant tax deductions, such as for high medical or long-term care expenses, consider withdrawing more from your IRA to offset that income. It is far better for you to receive 100 cents on the dollar from your retirement account than to leave it to your children, who will have to pay income tax on it.
  • Fill Up Your Tax Bracket: Work with your accountant to withdraw the maximum amount possible from your retirement account each year without pushing yourself into a higher tax bracket.
  • Use a Qualified Charitable Distribution (QCD): If you are charitably inclined, you can donate directly from your IRA to a qualified charity. This donation counts toward your RMD, but the withdrawal is not included in your taxable income.

These strategies are a critical part of a comprehensive retirement and estate plan. Call our office at (919) 256-7000 to schedule a consultation.