For Pre-Retirees: Planning for the Next Chapter

The estate plan that made sense in your forties usually needs work in your sixties. Different priorities, different assets, different risks. The questions that come into focus near retirement aren't the same ones you thought about when you were raising kids or buying your first home.

This guide covers the four topics most relevant for pre-retirees and early retirees: long-term care planning, Medicaid asset protection, beneficiary designations that need a refresh, and how retirement accounts factor into the rest of your plan.

Long-Term Care: The Risk Most Retirement Plans Underestimate

Long-term care is the single biggest financial risk facing retirees, and the one most people are least prepared for. Roughly 70% of Americans over 65 will need some form of long-term care during their lifetimes. The costs are significant, the timing is unpredictable, and Medicare doesn't cover most of it.

What long-term care actually costs

Nursing home care commonly runs $90,000–$120,000 per year. Assisted living averages around $55,000–$70,000 per year. In-home care costs vary but often exceeds $30 per hour for skilled help.

Costs vary significantly by region. Major metropolitan areas and high-cost states like California, New York, and Massachusetts run well above the national average. Rural areas tend to be lower. Either way, a few years of care can deplete a retirement plan that would otherwise have lasted decades.

Why Medicare doesn't cover most of it

This is one of the most common misunderstandings in retirement planning. Medicare covers acute medical care: hospital stays, doctor visits, post-surgical rehab. It does not cover ongoing custodial care (help with bathing, dressing, eating, daily living) once it's no longer medically necessary in the strict sense. After roughly 100 days of skilled nursing facility care following a qualifying hospitalization, Medicare's coverage ends.

That's where private long-term care insurance, personal savings, and eventually, for many families, Medicaid come in. Each has its own role.

The three main planning options

• Long-term care insurance. Purchased while you're still healthy enough to qualify. Premiums vary by age, health, and coverage level. Worth considering in your 50s; harder to obtain in your 70s.
• Self-funding. Setting aside dedicated assets to cover potential care costs. Works for higher-net-worth families but requires a meaningful reserve.
• Medicaid planning. Restructuring assets in advance so that, if care becomes necessary, you can qualify for Medicaid without spending down to poverty. This is where estate planning law has real leverage.

Medicaid Asset Protection & the 5-Year Lookback

Medicaid is the safety net most families end up relying on for long-term care, but it has strict asset limits. Without planning, qualifying for Medicaid often means spending down your savings to near-poverty levels first, including, in some cases, selling the home. With planning done well in advance, you can protect meaningful assets and still qualify when the time comes.

What Medicaid actually counts

Medicaid eligibility rules cap your "countable assets" at a low threshold (often around $2,000 for an individual), though some assets like a primary residence (up to a state-specific equity limit) and a vehicle are typically exempt.

Countable assets include cash, savings, investment accounts, retirement accounts (in most cases), and the cash value of life insurance. Exempt assets typically include the primary residence (subject to equity caps), one vehicle, personal effects, and a modest burial fund. The specifics vary meaningfully by state.

The 5-year lookback rule

When you apply for Medicaid long-term care benefits, the agency reviews five years of financial history. Asset transfers made during that window can trigger a penalty period during which Medicaid won't pay for your care.

This is why Medicaid planning has to happen years before care is needed. Gifts to family, transfers into certain types of trusts, or selling assets below market value during the lookback window all create penalty exposure. Planning done early, well before the lookback applies, opens up options that aren't available once care is imminent.

How Medicaid asset protection trusts work

A Medicaid asset protection trust is an irrevocable trust that holds assets you want to protect from being counted toward Medicaid eligibility. Assets transferred to the trust at least five years before applying for Medicaid are generally not counted. You give up direct control of the assets (they belong to the trust) but you can typically continue to receive income from them, and the trust ultimately passes the protected assets to your beneficiaries.

This is a meaningful trade-off. Medicaid asset protection trusts work for some families and don't work for others. The right answer depends on your overall financial picture, your health, your family situation, and how you weigh the loss of direct control against the protection.

Updating Beneficiary Designations as You Approach Retirement

If you haven't reviewed your beneficiary designations since you set them up. For many people, that means since they first opened the account decades ago. There's a real chance they don't reflect your current life. Beneficiary designations override your will entirely, which means an outdated one can quietly undo the rest of your plan.

Why beneficiary designations override your will

Beneficiary designations on retirement accounts, life insurance, and pay-on-death accounts transfer those assets directly to whoever is named, regardless of what your will or trust says.

If your IRA names a sibling from 30 years ago, that's who gets it, even if your current will leaves everything to your spouse. If your 401(k) names a former spouse and you never updated after the divorce, that's who inherits. The will doesn't override the beneficiary designation. The beneficiary designation wins.

The most common out-of-date situations

• Former spouses still listed after a divorce
• Deceased family members still named as beneficiaries, with no contingent beneficiary in place
• Adult children listed individually when a trust structure would better serve the family (especially with significant retirement account balances)
• An estate named as beneficiary, which forces tax-advantaged accounts through probate and accelerates required distributions in ways that cost the family money
• Blank contingent beneficiaries. Primary beneficiary is fine, but if they predecease you, the account defaults to your estate

Accounts worth reviewing every few years

• 401(k), 403(b), 457, and other employer retirement plans
• IRAs (Traditional, Roth, Inherited, SEP, SIMPLE)
• Life insurance policies (term and permanent)
• Annuities
• Pay-on-death and transfer-on-death bank and brokerage accounts
• HSAs (Health Savings Accounts)

Each of these has its own beneficiary form. Updating one doesn't update the others. eLegacy walks pre-retirees through every account that needs attention, so nothing gets missed.

Retirement Accounts and Required Distributions

Retirement accounts (401(k)s, IRAs, and similar) are the largest financial asset for most pre-retirees. They also have their own rules that interact with the rest of your estate plan in ways other assets don't. A few decisions here can make a significant difference in what your family receives.

Required Minimum Distributions (RMDs)

Once you reach age 73, the IRS requires you to start withdrawing a minimum amount from most retirement accounts each year, whether you need the money or not.

RMDs are calculated based on your account balance and your life expectancy. The penalty for missing one is steep (historically 50% of the missed distribution, reduced under recent legislation but still substantial). For most retirees, the RMD calculation is straightforward and the timing is automatic. But coordinating RMDs with other income sources (Social Security, pensions, taxable brokerage withdrawals) is where good financial planning earns its keep.

The new rules for inherited IRAs

The rules changed meaningfully in 2020 with the SECURE Act. Most non-spouse beneficiaries who inherit an IRA now have to withdraw the entire balance within 10 years, not over their own lifetime as the prior "stretch IRA" allowed. That's a major change with real tax consequences for adult children inheriting larger balances.

Planning around the 10-year rule has become its own discipline:

• Roth conversions during your lifetime can reduce the tax burden your heirs face
• Naming a trust as IRA beneficiary requires careful drafting under the new rules. Done wrong, it can accelerate distributions further
• Coordinating across heirs. Leaving the IRA to one beneficiary and other assets to another may reduce total family taxes

When to name a trust as your retirement account beneficiary

For retirees with significant IRA balances who want to protect inheritance for grandchildren, special-needs family members, or children whose financial situations warrant oversight, a trust can be the right beneficiary, but the trust has to be drafted with retirement account rules specifically in mind. Generic "leave it to the trust" language can trigger faster distributions and higher taxes. This is one of the areas where attorney involvement matters most.