How is membership type best set up for monthly direct debit payments?
Since CiviCRM does not yet allow partial payments/payment plans for annual memberships, you'll have to create a membership type for each level and each payment schedule.

Using your example of levels of memberships, define your membership types as:


Annual membership for over 65 - amount: $1200
Monthly membership for over 65 - amount: $100 (require auto-renew)
Annual membership for under 16 - amount: $60
Monthly membership for under 16 - amount:  $5 (require auto-renew)