OBBB Is a Reminder for Older People to Have a Long-Term Plan

An older couple work on financial planning together at their kitchen table.

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Risk tolerance lowers as you age, meaning once you're retired, any significant financial changes or economic news can have a big impact on the rest of your life.

As we saw in early spring, many retirees were thrown for a loop when the stock market briefly collapsed in response to President Donald Trump's ongoing tariff announcements.

The recent One Big Beautiful Bill (OBBB) is the latest news from the Capitol that will impact retirees.

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While the act didn't quite deliver on eliminating taxes on Social Security, as claimed by a misleading statement from the Social Security Administration, it does include a few significant changes for older people.

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It will take years to see the true long-term impact of the changes, such as tax-cut extensions and Medicaid cuts, but the time to plan is now. This is an opportunity to proactively plan, help protect your finances and boost your retirement.

Tax changes

Older adults have already benefited from lower tax rates from the Tax Cuts and Jobs Act, and those taxes were set to expire after the 2025 tax season. Not only does this act extend those cuts through at least 2028, but it adds a new $6,000 deduction for people age 65 and older.

The new tax deduction for many retirees was added instead of eliminating taxes on Social Security, and taxpayers 65 and older who earn under $75,000 as single filers and under $150,000 as joint filers are eligible. It's estimated to provide an average tax relief of about $1,100.

The security of additional years with lower tax rates and an additional deduction for older people means they should revisit their tax plans.

Roth conversions are a crucial part of retirement plans, and older individuals can use the tax deduction to reduce taxation for future generations through their retirement accounts.

Tax-deferred retirement accounts can lead to hefty tax bills when income is withdrawn from the account. This new tax deduction presents an opportunity, as you can use that deduction to offset taxes accrued from a Roth conversion.

It also allows you to take advantage of capital gains in a Roth account tax-free. Take advantage of this additional tax break by revisiting your Roth conversion plan and considering converting more retirement assets into Roth accounts.

Another benefit from additional tax deductions is an adjustment to Medicare premiums. These are calculated using modified adjusted gross income (MAGI), which is the income after tax adjustments, from two years ago.

While it will take a couple of years to take effect, a lower tax burden would reduce older adults' MAGI and potentially lower their Medicare premiums.

Long-term care

People older than 65 have almost a 70% chance of needing long-term care, and that can cost hundreds of thousands of dollars. Medicare doesn't cover long-term care, and a recent survey found that almost half of older adults don't know how to plan for their long-term care needs. That's a problem.

As a result, millions of Americans 65 and older rely on Medicaid, which covers thousands of Americans who can't afford health care otherwise. It's a crucial resource for older people looking for long-term care.

Some older people without long-term care plans spend down their income or assets to meet Medicaid's financial limits in their respective states and become eligible.

The OBBB makes changes to Medicaid that will raise prices for older people and limit funding for its services. We don't know the exact effect of these cuts, but it's a sobering reminder of our need to plan for health care costs in retirement.

Long-term care insurance is the easiest way to cover your expenses, but it's best to get a policy earlier rather than later because it can be difficult to qualify later.

Some annuities also have long-term care riders built into them that can help cover the cost. Health savings accounts (HSAs) can be an option to cover expenses.

Even though you can't contribute to an HSA once you are enrolled in Medicare, if you contributed to one before retirement and have money in the account, you can use the funds for costs covered by Medicare.

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Having a retirement plan is the first step to enjoying your golden years, but proper management requires constant adjustment to fit your unique goals.

The ripple effects from this budget act will continue to unfold in the coming years, and while it's difficult to predict the exact impact in the present, we can anticipate and proactively prepare your financial future.

Many impactful changes are constantly unfolding, and it's important to have a plan.

As retirees, you can't afford to risk your future. Take this as an opportunity to visit with a financial adviser to discuss your financial goals and help adjust your retirement plan for success.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Ashley Terrell is an IAR for Burns Estate Planning & Wealth Advisors. After a successful run as Director of Operations and Processing for the firm's assets under management, she obtained her Series 65 to help guide clients' wealth and retirement planning. Ashley oversees Burns Estate Planning's West Palm Beach, Fla., office.