Financial Choices Overview

Financial Choices and Challenges for Seniors


By the time people are seniors, they may have been following a financial plan of some kind for years. They may be living on their current income, hoping their investments will continue generating income for their retirement. Or they may not have enough income to do more than pay for the basic necessities of daily living.

It doesn’t make much sense for seniors who have not accumulated a large amount of wealth to do traditional long-term financial planning because they no longer have the length of life expectancy necessary to build wealth over the long-term. Instead, it makes more sense to talk about seniors’ financial concerns and the strategies they can use to:

  • Make the best use of their current income, assets, and other resources (regardless of the amount);
  • Afford as many lifestyle choices as possible throughout their retirement;
  • Leave a legacy to others after their death

Today’s seniors possess a great diversity of financial needs. Many face new and complex family responsibilities and financial decisions that affect their attitudes about retirement and their ability to save for it. Throughout this section information will be provided regarding the following:

  • Effects of increased longevity and inflation on individuals’ abilities to save and plan for retirement;
  • Key financial concerns of seniors in three financial groups: high net worth, middle income, and lower income, focusing on the majority of seniors in the middle and lower income groups;
  • Financial needs at the three stages of retirement: active, passive and final;
  • Six steps of financial planning that help individuals estimate and plan for their financial needs through all three phases of retirement;
  • Risk-management strategies, including life and health insurance and tax planning;
  • Investment strategies and vehicles: growth, income, asset allocation; stocks, bonds, and mutual funds;
  • Sources of retirement income commonly used by seniors: IRAs and other qualified retirement plans (including required minimum distributions, early withdrawals, and beneficiary designations), annuities, and reverse mortgages;
  • Common investment pitfalls: what they are and how to protect against them.

Primary Senior Income Groups

It should come as no surprise that seniors occupy the same general income groups as the overall population: high net worth, middle income, and lower income. We characterize the three groups this way:

  • high net worth: more than enough assets to provide for desired lifestyle and to make bequests
  • middle income: generally enough income to provide for a desired lifestyle, but compromises may play a large part
  • lower income: barely enough income to provide for basic needs

Senior Income Group

Key Financial Concerns

High Net Worth:

$ 1 million-plus in assets

  • managing taxes
  • maintaining and growing wealth
  • sharing wealth with heirs, charities, and others

Middle Income:

$ 30,000-$ 80,000 annual income (not assets)

  • outliving assets
  • generating ongoing retirement income
  • financially supporting family members
  • maximizing income from multiple sources

Lower Income:

Less than $ 30,000 annual income (not assets)

  • paying for basic necessities of daily living

 High Net Worth

The exact financial point at which an individual is identified as being in the high net worth (HNW) category varies, depending on who is doing the identification. For our purposes, let’s place the mark at those with more than $1 million in investable assets, not including their primary residence. There are more than 2.9 million HNW individuals in the United States (source: 2006 World Wealth Report by Merrill Lynch and Cap Gemini). 8663139960

According to Thane Stenner, author True Wealth (2001):

  • Most HNW individuals earned their wealth by owning their own businesses.
  • A large portion of HNW individuals believe that maintaining current wealth and income is more important than building it.
  • HNW individuals face two general challenges:
    • Ensuring they have a comprehensive financial plan;
    • Matching sophisticated investments with their unique needs.

Financial Concerns

In addition to maintaining their asset base, HNW individuals tend to have two primary areas of concern. One area of concern is to manage their tax burden, and the other is to maximize growth and income from their assets.

Middle Income

It is difficult identify exactly what qualifies as middle income, but let’s say that it is between $ 30,000 and $ 80,000 per year. (The median income-that point at which half of seniors have more income than that amount and half have less-for a four-person family in the United States is currently about $70,354 (Source: US Department of Health and Human Services, 2008). Note, too, that we are talking about income levels here, rather than asset levels as we did with HNW individuals. For both middle and lower-income individuals, income is usually of greater significance than assets. Also at this level, a senior’s most significant asset is typically the primary residence.

Financial Concerns

Seniors in the middle-income group share many of the concerns common to those in the high-income group (especially for those in the upper middle-income category). However, we can also identify a number of concerns specific to the middle-income group: outliving their assets, ongoing retirement income, financially supporting other family members, and maximizing income from multiple sources such as a regular paycheck, Social Security, and Supplemental Security Income.

Lower Income

Definitions of the low-income category for seniors vary. For our purposes, we define it as an annual income below $ 30,000. This income bracket includes poor seniors, seniors with annual incomes between poverty and 125 percent of poverty, and those with annual incomes between 125 percent of poverty and $ 30,000. For these seniors, increased expenses of even a few dollars each month have a huge impact.

Poor Seniors

In 2008 the poverty threshold was defined by the Census Bureau as an annual income of $ 10,400 a year for a single person and $ 14,000 for two people. The poverty rate in 2007 for seniors 65 and older remained at 9.7 percent, up from 9.4 in 2006; while the number of seniors 65 and older in poverty increased from 3.4 million in 2006 to 3.6 million 2007.

Seniors with Annual Incomes between Poverty and 125 Percent of Poverty

15.6 percent of the senior population has incomes between poverty and 125 percent of the poverty level (United States Census Bureau, 2006). This means that in 2006 one in six seniors had incomes between $ 9,800 and $ 12, 250, if they were single, or $ 13,200 and $ 16,500, if they were a couple. The Census Bureau is not due to release the 2007 numbers until August 26, 2009.

Seniors with Annual Incomes between 125 Percent of Poverty and $ 30,000

Many seniors have incomes that are higher than 125 percent of poverty, but are still very low. For example, the overall median income of seniors in 2007 was $ 17,382. In addition, one fourth of Americans 65 and over had incomes of less than $ 10,722 in 2007 (Source: Congressional Research Services).

In 2004 the median income of people age 80 or older was barely near the subsistence level and only slightly more than half that of seniors ages 65 to 69.


Median Income (Dollars)







80 or older


Source: Income of the Aged Chartbook, Social Security Administration, 2004

Shifting from One Income Group to Another

Barring a major financial reversal, we can generally assume most HNW individuals will remain HNW individuals. So as HNW individuals solidify their financial position, they are unlikely to shift into a lower income category.

But the same cannot be said for many seniors in the middle-income category. It is all too possible to move from a relatively comfortable lifestyle pen? Generally, this results from inadequate financial and retirement planning and by spending too much money, particularly in the five years immediately before and after retirement.

In addition, many, if not most, people underestimate the amount of money they will need to provide for a comfortable retirement (comfortable meaning about the same lifestyle to which they have become accustomed). Together, these factors add up to the real possibility that someone who started out solidly at a middle-income level may wind up living at a much lower income level. This does not mean that those in the middle-income category will necessarily move into poverty (although some may). However, it is likely that many of these people will experience a decline in their standard of living during retirement.

The information above is reprinted from Working with Seniors: Health, Financial and Social Issues with permission from Society of Certified Senior Advisors® . Copyright © 2009. All rights reserved.