JANUARY 2020

Now that you're in your 70s, you might want to consider streamlining your finances. Here are three steps you can take.

Ninety percent of Americans leave the workforce by the age of 75*. Are you one of them?

Whether you’re taking classes, traveling the world, or spending time with family, you can make the most of this decade if you secure and simplify your finances first. Here are three ways to get started:

1. Take Your Required Minimum Distributions

Turning 70 marks a major transition for many retirees. Starting at age 72, you generally have to begin taking required minimum distributions (RMDs) annually from your tax-deferred retirement accounts such as 401(k)s and traditional IRAs. The amount you must withdraw — which is generally determined by taking your account balance at the end of the preceding calendar year and dividing it by a distribution period from the IRS’s “Uniform Life Table” — will be considered taxable income.

• RMDs are the minimum amounts that the IRS requires you to withdraw from traditional, SEP/SARSEP or SIMPLE IRA accounts each year once you turn age 72. You’re also required to take RMDs from employer plan accounts, e.g., 401(k), 403(b), 457, money purchase and profit-sharing plans. Those distributions generally begin when you turn age 72 or when you retire, whichever is later.
• If you don’t have an immediate need for the cash, consider reinvesting your RMD in a taxable account. According to the Investment Company Institute, 42% of retired households taking traditional IRA withdrawals in tax year 2015 reinvested or transferred the money into another account.
• If you’re financially secure you might consider donating the money to a charitable organization. Investors over age 70½ can transfer up to $100,000 from an IRA to a qualified charity without the distribution counting as taxable income. Keep in mind, if you have a 401(k) or 403(b), those assets must be rolled over to an IRA before they can be transferred to the charity.

2. Review Your Medicare Insurance Coverage

When you became eligible for Medicare, you may have purchased a supplemental Medicare insurance policy or a Part D drug plan to cover gaps and help limit health care expenses. “If you still have the same coverage you bought when you turned 65, it might be time for a review,” says Hans Scheil, a certified financial planner, CEO of Cardinal Retirement Planning, and author of The Complete Cardinal Guide to Planning for and Living in Retirement.

Make sure you still have the kind of coverage you want at a price you’re able to pay. Some things may have changed since you first bought your policy. Do you have any new health issues? Are your providers still part of the plan network? Have costs increased markedly?

3. Simplify Your Financial Life

Even if you pride yourself on your organizational skills (and feel confident about your current asset allocation), now is a good time to consider streamlining your various accounts and policies if you haven’t already done so.

• Compile. Make a list of your assets. This should include any bank, brokerage, or retirement accounts you have as well as insurance policies or trusts. 
• Consolidate. If you have more than one IRA or 401(k), you might want to roll them into one IRA. If you have multiple checking or savings accounts at a number of banks, consider combining some of those accounts and transferring them to the one best able to accommodate your needs.
• Organize. Make a list of key contacts such as your accountant, lawyer, financial advisor and, if applicable, insurance agent. Share that information with a trusted loved one or friend who can step in and manage your finances if necessary. If you haven't done so yet, be sure to make plans for your estate. “Get your legal documents and all your accounts in order to make it easy on your family,” Scheil recommends.

The SECURE Act increased the age when required minimum distributions (RMD) must begin from 70½ to 72, effective for individuals turning 70½ on or after January 1, 2020. If you reached age 70½ before this date, you are still required to take RMDs.

 ^*LIMRA Secure Retirement Institute analysis (2016).