Medications, joint replacements, and cosmetic medicine have changed the outlooks of clients who recently retired or are beginning to step away from work. Many are still vigorous and full of plans — travel, second homes, volunteer work — for their newfound freedom.

I call this life stage “early old age” (although clients may bristle at the term). It is the stage before late old age with its distinct challenges and financial needs, as I covered in an earlier article.

You likely have clients in early old age whose savings, investment, and real estate portfolios amount to more money than they expect to need in their lifetimes, even accounting for long-term care (as you must).

These clients need your expert advice to prepare them for the unexpected (and unavoidable) while they enjoy the rewards of their hard work.

Priorities For Advisors And Clients In Early Old Age
Early old age isn’t defined as much by birth year as by health and cognitive status. But it is roughly between the late 60s (as individuals work longer) and mid-to-late 70s. While no two wealthy families are alike, those in early old age are typically married, and their health is not (yet) of any concern. Heck, they’re riding bikes and playing tennis, golf, and pickleball.  

If you’ve been their advisor for a while, you’ve navigated them to a comfortable financial position. Priorities are:

• Figuring out the best Social Security filing strategy if they haven’t started benefits.

• Coordinating withdrawals from investments to maximize income and minimize taxes on investment income, capital gains, and qualified plan withdrawals.

• Affirming they don’t want or need to change beneficiary designations in wills and inheritable holdings, such as 401(k) plans and traditional and Roth individual retirement accounts (IRAs).

• Arranging for donations to charities they want to support, usually through a donor-advised fund.

• Advanced tax planning so their beneficiaries or estates don’t wind up with large bills. 

• Evaluating how much support they want to provide to children or elderly parents.

• If they will inherit income from older relatives, suggesting ways to minimize the taxes that could be incurred.

That’s a tall list, but what you need to do and in what order will differ for every client. Even if clients have a financial plan, this is the time to review it from their new perspective in early old age.

Start With Death And Taxes
Couples in early old age aren’t blind to the fact that one will most likely die before the other. You will want to be sure that a grieving spouse doesn’t have to deal with incomplete financial matters.

At this stage, couples should hire a trusts and estates lawyer who can help protect assets after the first spouse dies and recommend actions to protect the inheritances of family members.

The lawyer can also document the beneficiaries of the couples’ investment and non-investment assets other than their IRAs and other tax-qualified retirement plans. You can see that clients have assigned (and, if needed, updated) primary and secondary beneficiaries to those accounts.

Turning to other decisions, you can use the right investment software to introduce critical uncertainties about each member’s survival and market returns. This exercise recognizes two actuarial facts of life that I find people overlook or shy away from acknowledging:  

1. Clients with health problems may find that the length of their lives isn’t shortened by disease, but their healthy life span may be altered. This includes people with degenerative or chronic diseases, like arthritis, heart disease, kidney disease, or diabetes.

2. Even when spouses are close in age, one member is likely to be widowed for five years or more. And it may not be the obvious spouse. This has significant financial effects.

So, the question “How’s your health?” becomes necessary for you to give informed advice.

You know that a spouse’s death significantly alters the opportunities for tax savings. When filing jointly, federal (and sometimes state) deductions for tax brackets are about twice the size of those available to a widowed spouse filing a single return. This is the time to make the most of withdrawals to fund Roth conversions (more on that later).

Should one spouse be diagnosed with a terminal health condition, you can help by moving appreciated assets from a joint account to a separately owned account, allowing the survivor to benefit from the step-up in tax basis.

Managing Investment And Retirement Accounts
Generally, in early old age, clients should begin voluntary withdrawals from their tax-advantaged IRAs or similar accounts to fund Roth conversions. In the case of a couple, make the older spouse’s accounts the priority. The advantages of Roth accounts, of course, are that there are no required minimum withdrawals (RMDs), and they aren’t taxable to the owners or the beneficiaries. 

When clients must begin taking RMDs (age 73 today, rising to 75 by 2033), distributions can fund their spending needs and help pay taxes on voluntary withdrawals, including any used to fund Roth conversions.

You may recommend that clients defer filing for Social Security to get the maximum benefit at age 70. For some, that may leave a shortfall in income, and you may recommend withdrawals from IRAs and other tax-deferred accounts to plug the gap. Again, decisions must turn on your clients’ tax brackets and deductions.

Clients with ample brokerage accounts and a charitable bent can convert appreciated investments into funding for a donor-advised fund or family foundation, which has somewhat different tax treatment. Clients realize a tax deduction and then have a “checkbook” for making donations over as many years as they like.

After a lifetime of worrying about market returns, early old-age clients can take a breather. A diversified portfolio of domestic and international stocks has a minimal probability of performing poorly over a long horizon, even with inflation. And a couple in early old age may have 20 or 30 years ahead of them.

For clients who feel more at ease with an income guarantee (as many will), you can manage some allocation to high-quality bonds or a deferred income annuity with survivor benefits. At this age, buying a complicated variable annuity is seldom needed. It would also be best to discourage clients from buying life insurance policies that “guarantee” a nominal bequest at an inflation-adjusted value. 

In my next article, I’ll explore the tax and planning challenges of clients in the next youngest cohort, which I call “late middle age.” Many are financially successful but have a dirty secret: Their financial affairs are scattered and disorganized. They need your help creating order through account consolidation and rollovers and, most critically, limiting the tax drag on their investments and savings.

Paul R. Samuelson is the chief investment officer and co-founder of LifeYield.