What To Do The Day You Turn 62

By Jack Mahoney, CFP®

Turning 62 is a milestone to be celebrated. At this point in your life you’ve built a career that you can be proud of and you may be starting to think about what’s next. You might be considering taking a step back at work to spend more time with friends and family. Or, if you’re a business owner, you might be thinking about selling your company, or passing it on to the next generation of leaders. As you start to contemplate retirement, or semi-retirement, the choices you make now will have a great impact on your financial success. Read on to learn more about some of the key financial planning strategies you’ll want to consider when you turn 62. 

1. Make A Social Security Plan

Social Security is a whole different ball game for high-net-worth individuals. You may think you can just ignore it or claim it whenever you want because you don’t need the money to live on. But remember, you earned this benefit by paying into the system and you can put it to good use, even if it’s not going towards paying your bills. 

Social Security benefits can be used to offset  healthcare costs as you age or towards long-term care expenses. Alternatively, you could put the money towards daily expenses and direct some of your other assets into 529 plans for your grandkids or towards building up an inheritance for your family. 

Think about it this way: Social Security is a guaranteed income stream that could pay out more than $1 million over your lifetime. If you don’t claim it, Social Security will only pay up to six months’ worth of retroactive benefits. In other words, if you’re 71 and haven’t claimed, you will start losing money that is yours, possibly thousands a month. Since you can start claiming Social Security benefits at the age of 62, now is the time to evaluate your needs and think about when you want to start claiming^[1]. 

2. Avoid Tax Headaches

When you enter retirement, your tax situation may change, and you’ll need to pay close attention to marginal tax rates, capital gains taxes, estate taxes and more. Careful planning can help ensure that you are paying the government your fair share, but no more. 

In the previous section we discussed claiming your Social Security benefit. Bear in mind, that any Social Security that you receive will be considered taxable income. For the 2019 and 2020 tax years, single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income was more than $34,000, you will pay taxes on up to 85% of your Social Security benefits. For married couples filing jointly, you will pay taxes on up to 50% of your Social Security income if you have a combined income of $32,000 to $44,000. If you have a combined income of more than $44,000, you can expect to pay taxes on up to 85% of your Social Security benefits².

There are several strategies you can employ to minimize the amount of income taxes you need to pay on your Social Security benefits. One strategy is waiting to claim Social Security benefits for as long as possible — up until age 70. That way, you are helping to increase Social Security income while decreasing the amount of money you take from tax-deferred retirement accounts such as 401(k) plans.

Another option to consider is making gifts. Federal gift tax rules state that gift givers are responsible for paying the gift tax. However, the lifetime exclusion (as of 2020) amount is $11.4 million, which means that you won’t owe the tax until you’ve given away more than $11.4 million in cash or assets during your lifetime. If you’re married, your spouse is entitled to a separate $11.4 million to give away. Additionally, the annual federal gift tax exclusion allows you to give away up to $15,000 in 2020 to as many people as you wish without those gifts counting against your $11.4 million lifetime exemption^[2]. Taking advantage of the gift tax exemption can help you to move assets out of your estate, effectively lessening your estate tax burden over time. 

Lastly, consider making charitable donations to the causes and organizations that you care about. When you give to qualified organizations, your gifts are 100% tax deductible. Generally, you may deduct up to 50 percent of your adjusted gross income in the tax year the gift was made, but 20 percent and 30 percent limitations apply in some cases^[3]. Another way to conduct your charitable giving is by establishing a Donor Advised Fund (DAF). When you fund a DAF you are able to take a tax deduction for the amount you contribute in a given tax year. Then over time, you can use the assets in your account to make donations to qualified organizations. This strategy helps you to reduce your overall tax burden 

Donors are able to take a current tax deduction for contributions made to the fund; this is an important feature because it allows a donor to take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later. This incentivizes donors who need a tax deduction to make a donation now and then decide where the money will go at a later time. This strategy also works well if you have highly appreciated stock because you can transfer the stock in-kind to the DAF and take an immediate deduction for the full value of the donation (subject to IRS limits). If you were to sell the stock outside of a DAF and then make a charitable donation you would be on the hook for the capital gains tax on the sale^[4]. 

3. Consider Long-Term Care

Right around 62 is the prime time to think about your potential need for long-term care insurance. According to the U.S. Department of Health and Human Services, 70% of Americans age 65 or older can expect to need some form of long-term care in their lifetime. On average nationally, it costs $275 per day or $8,365 per month for a private room in a nursing home.^[5] But the older you get, the higher your cost for a long-term care insurance policy will be and the greater the likelihood of your application being denied or too cost prohibitive. Generally, you can get the most advantageous pricing on long-term care insurance when you apply for it in your mid-60’s.  Hopefully you will remain happy and healthy for years to come, but by getting coverage now you can give yourself, your spouse, and your children peace of mind. 

4. Create Some Retirement Goals

Modern retirement looks different for everyone. Many have found that going from working full time to being fully retired is a shock to the system and prefer to transition over time, slowly reducing their time in the office and transferring responsibilities to colleagues. Others relish their newfound free time and are excited to travel and spend time on hobbies they previously didn’t have time for. In either situation, getting clear on what you want out of this phase in your life is central to achieving a lifestyle that you love. 

Start by asking yourself how you would like to spend your time. Some questions to consider: 

• Would I like to remain a part of my company as a chairperson or advisory board member? 
• Can I lend my experience to a friend or family member’s business as mentor? 
• What clubs do I want to maintain an active membership with? 
• Where will I reside? Will I purchase or maintain a vacation home? 
• How important is travel? 
• Do I want to be involved with my alma mater? 

Hopefully, these questions will get your creative juices flowing. Once you have done some brainstorming, the next step is to make a plan. Start by making a list of things you want to do, places you want to go, and the people you want to spend time with. Next, take out your calendar and start mapping out when you will do each of the items on your wish list. It’s easy to get over-ambitious! Just take it one year at a time and set a few key goals to focus on. 

Lastly, talk to your financial advisor about you plans! Your advisor can run projections and help you understand what impact your goals will have on your financial plan. Your advisor can also help you establish a new budget as your income and cash flow needs change. Don’t wait to start planning! By creating a plan now and speaking with your advisor you can help to ensure that your goals become a reality. 

What Are Your Plans?

Have you thought through these four steps to take when you reach age 62? It’s critical that you take them seriously so you can maximize your time and your assets in this new chapter of your life. Having a strategy in place and a team to guide you along the way can help make this next phase of life seem less daunting and much more approachable. If you would like someone to walk you through these decisions and the many other planning considerations that come with retirement, the team at Simon Quick would love to help. Call us at 973-525-1000 or email Info@simonquickadvisors.com.

Do you have any questions regarding this content? We would love to chat! 

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About Jack Mahoney

Mr. Mahoney joined Simon Quick in 2018 and is based in Morristown, NJ. As a Director on the client advisory team, his focus is on providing investment and financial planning advice to high net worth individuals & families. Most recently, Mr. Mahoney worked at UBS Private Wealth Management in NYC, where he was responsible for providing access to wealth management solutions available to the firm’s ultra-high net worth clients. Mr. Mahoney graduated from Connecticut College in New London, CT. He became a CERTIFIED FINANCIAL PLANNER™ practitioner in 2015. To learn more about Jack visit his LinkedIn.

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