Social Security at Age 70 Maximizes Future Income

We have all been told by financial and retirement planners that the best way to maximize the size of our Social Security benefits is to wait until age 70 to begin collecting.  However, according to research completed by the Transamerica Center for Retirement Studies, only one percent of retirees who are currently receiving Social Security waited until they were 70 years old before they claimed their benefits.  The median age to claim was 62, which is also the earliest most people can claim, meaning that the vast majority of senior citizens are willing to take reduced benefits rather than wait eight years in order to receive substantially more money.

Why Don't People Wait Until Age 70 to Claim Social Security?

If people can receive more money by waiting to receive their benefits, why don't they?

1.  Most Americans cannot afford to wait. As soon as they decide to stop working, they must begin to collect their benefits because they don't have enough assets to support themselves.  The median household between the ages of 60 and 64 has approximately $202,000 saved for retirement.  At a 4 percent withdrawal rate, that is only $8,000 income a year, which is not enough income to live on.

2.  In addition, 60 percent of retirees stop working sooner than they planned ... which means they need to start taking their benefits earlier than anticipated.  Of that 60 percent, about two-thirds stop working because they lost their job; a little over one-quarter of them retired because of health problems.

3.  Some Americans have been misled to believe that Social Security will soon run out of money, so they rush into claiming their benefits as soon as possible.

4.  A few people nearing retirement believe they can successfully invest their Social Security benefits while they are still working, doing even better than the increased earnings they will receive by waiting.  While a small number may be successful, most of these people will find that their guaranteed increase in benefits is more reliable than their ability to invest the money wisely despite the ups and downs in the market.

When Should You Take Social Security Benefits Early?

Yes, there are times when the smart move could be to take your Social Security benefits as early as possible.

1.  If you have no other way to support yourself because you have lost your job in your 60's or you have developed a major health problem, then your only alternative will be to claim your Social Security ... and be thankful it is available.

2.  You may also wish to collect early if you develop a life-shortening terminal illness.  The average man at age 65 can expect to live until age 84.3; the average woman should live until age 86.6.  If your life expectancy has been significantly reduced because you are on kidney dialysis or have a cancer that has metastasized, for example, then you may have good reason to take your benefits early.

Spousal Benefits Can Complicate the Decision

Even if you fall into one of the categories that would justify taking your Social Security benefits early, there is one reason why you may decide to postpone collecting as long as possible ... the effect your decision will have on your spouse.

For example, if you could receive $3,000 a month at age 70, your spouse would also be entitled to $1,500 a month at their full retirement age of 66 or 67.  If you die after age 70, your spouse would then get their benefits bumped up to what you have been receiving.  On the other hand, if you collect in your early 60's and only receive around $2,000 a month, everything will be proportionally reduced for your spouse, as well.  If you want to be sure your spouse will have enough money to live on after you are gone, you may want to postpone collecting as long as possible.

Does It Make a Difference in Your Total Lifetime Earnings?

While your monthly benefits are higher the longer you wait, will it really make a difference to your lifetime earnings?  The Social Security Administration uses actuarial tables to estimate how much more people can receive the longer they wait.  While, of course, individual results will differ depending on their actual lifespan, the Social Security Administration say, "As a general rule, early or late retirement will give you about the same total Social Security benefits over your lifetime."

Of course, that applies to those people who live an "average" length of time!

If you are interested in learning more about Social Security, Medicare, financial planning, where to retire, common health problems or other issues related to retirement, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional articles.

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The Retirement Income Red Zone Danger

If you have put together a sizeable portfolio prior to retirement, knowing how to protect those assets during your first five years after retirement will be extremely important, especially if you want to be sure they will last the remainder of your life.  These first five years after retirement are sometimes referred to as the red zone ... the time when decisions you make can have the biggest impact on your future.

What Bad Decisions Do People Make in Early Retirement?

When people first retire, they often have a number of of pent-up dreams they wish to fulfill.  They still feel healthy and they may want to move somewhere new, travel, buy a boat or RV, and have a little fun.  After all, they have waited and saved their entire lives for this moment and they want to enjoy it before age and illness slows them down.

Next, retirees often stop saving and putting aside money for the future.  As they pull money from the principal without replacing it, retirees gradually see their assets become depleted.

In addition, retirees sometimes do not prepare adequately for rising expenses or problems that could come up in the future, including extra medical expenses such as health insurance deductibles, expensive treatments, long-term care, etc. They also sometimes fail to prepare for things like replacing their car, hot water heater, furnace or other expensive items.

Even if new retirees do not make any of the above mistakes during their first five years after retirement, their assets could become depleted because of poor investment decisions.

Should You Invest for Growth or Safety?

Investment advisors recommend that your retirement assets should be invested for both growth and safety ... but what is the correct balance?  According to an article by CNBC writer, Kelley Holland, "Five Crucial Retirement Years For Your Money," it is extremely important that you do not have negative investment returns during your first five years of retirement.  When experts from Prudential Insurance examined two hypothetical $1 million portfolios, Portfolio A had negative returns for 4 of the first 5 years, but positive returns for all of the remaining years of its existence.  Portfolio B had all positive returns in the first 5 years, but had negative returns in 4 of 5 years between years 25 and 30.

What were the results?  Portfolio A had dropped to zero within 15 years.  Portfolio B had doubled in value by the end of 30 years, despite the negative returns at the end.

What Should an Investor Do?

After examining the results of these two hypothetical portfolios, experts believe it is important that investors manage their money conservatively early in retirement so their portfolio continues to grow in value, even modestly, during this crucial period.  In order to do this, it would be a mistake for retirees to make risky investments or begin depleting their principal for trips or other large purchases.

Retirees need to work with their investment advisor to make sure their money is wisely invested.  Holland recommends that no more than 40 to 60 percent of a retirement portfolio should be in stocks (and, obviously, these should be Blue Chip stocks, not high-risk ones).

As retirees begin to live off their assets, their withdrawals should be modest and their asset allocation should be conservative, particularly during the first five years.  In other posts on this blog, we have reported that most investment advisors suggest that no more than 3 percent of assets should be withdrawn for living expenses during retirement, with tiny increases in the withdrawal rate as the years go by.  If the principal balance is invested conservatively, the assets of most people should last well over 30 years.

Some investment advisors also recommend that any income from the assets that is in excess of what is needed for living expenses should then be invested in stocks which, hopefully, will appreciate and provide an extra cushion for the future. This extra cushion will be especially helpful if there is a stock downturn in the future ... which is almost certain to happen every few years.

In the end, this plan is the one that is most likely to leave you with enough assets to last the remainder of your life.

If you are interested in reading more tips about handling your retirement income, where to retire, common medical problems, Medicare, Social Security and more, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional articles.

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Benefits of Senior Roommates

A significant percentage of senior citizens will spend at least part of their lives living alone.  When this happens, they may suffer from loneliness and depression.  In addition, it can be expensive for one person to afford to pay all the bills.  Because of this, senior roommates are becoming a popular trend.

According to an article in the "Answers" book for the Orange County, California Council on Aging, four million American women now live in households with at least two women over the age of 50.

Why Women are Alone as They Age

More than one-third of women over the age of 65 now live alone.  The reasons for this could be the death of a spouse, divorce, or the fact that they never married.

On average, women live about five years longer than men.  In addition, women often marry men who are older than they are ... which means that some women may live a decade or longer after their husbands die.

Another issue is that there has been a huge increase in gray divorce.  Since 1990, the divorce rate for people over the age of 50 has doubled, according to the National Center for Family and Marriage Research.

Advantages of Senior Roommates

When women decide to enter a house sharing arrangement, they can both benefit in several ways.

*  Financially, people supporting themselves on fixed incomes can live more comfortably if they share the cost of housing, utilities and other expenses.

*  The added security of having another person in the home can be one more advantage of having a roommate.

*  Socialization is an additional reason for finding a roommate.  It is easy for people to become isolated, lonely and depressed as they age.  People who live with an amicable friend will always have someone to talk to, eat with, and sometimes they will do other things together ... such as attending movies or traveling.

Is Having a Roommate Right for You?

Not everyone actually wants to have a roommate close to them all the time.  You need to know yourself, and evaluate the home you will be sharing.  Will you have enough personal, private space?  Are you flexible?  Do you have a lot of allergies, health problems or food preferences which could make it difficult for you to live with other people?

What Guidelines Need to be Put in Writing?

If you are planning to live with another person, it may go better if the two of you put your expectations in writing and discuss them first.  Below are some issues your agreement may need to cover:

*  Decide in advance specifically how the expenses will be shared.  Will one person be the landlord and the other the tenant, or will everything be split right down the middle?
*  Decide who will perform which household tasks and how often ... cleaning, cooking, dishes, yardwork, etc.
*  Decide if the two of you are going to cook and eat together or if you will each be responsible for your own meals.
*  Reach an agreement about pets ... if they are allowed, what kind, how large, where they will be kept, etc.
*  Discuss grandchildren with each other.  Will they be allowed to spend the night, how often, where they will sleep, etc.
*  Discuss other relatives, such as adult children, and whether they will be allowed to spend the night.
*  Discuss dating and whether your dates will be allowed to spend the night.
*  Discuss personal habits such as smoking and drinking.
*  If either of you have strong religious or political opinions that could be the source of arguments, you should consider that before making a decision about whether or not you want to live with this person.
*  Discuss other expectations such as entertaining friends, relying on each other to do the shopping, what time the house should be quiet, using earphones to watch TV, when you could each practice playing your musical instruments, etc.
*  Discuss healthcare preferences with each other, in the event of a medical emergency.  Also make sure you both have contact information for relatives, employers, lawyers or other people who would need to be contacted in the event of death or serious illness.

As you can see, there are a large number of issues to consider before you decide if you and your roommate will be compatible.  Everything should be put in writing after you have talked about it.  This will reduce confusion about what you both agreed to.

How to Find a Roommate

In many cases, you may already know someone who is looking for a roommate because they recently lost a spouse or experienced a financial setback.  However, before bringing up the topic with them, ask yourself how well you think you will get along with that person.  Do they have personal habits that you find irritating?  Even someone who talks too much or too loudly can become irritating after a while.

If you are thinking about getting a senior roommate, you can visit the National Shared Housing website for additional help.

If you need other ideas about where to retire, common medical issues, financial planning, Social Security, Medicare or other retirement issues, use the tabs or pull down menu at the top of the page to find links to hundreds of additional articles.

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Credit Scores and Retirement

Once you retire, your credit score will still be important.  Even if your mortgage is paid off and you have no plans to borrow money ever again, you will still want to carefully monitor your credit rating and make sure there are no issues with it.

When the credit-reporting company, TransUnion, polled a group of Baby Boomers, nearly half of them said that their credit rating would no longer be important after they retired.  This misconception, however, could cause them to have unexpected problems later in life.

Your Credit Rating Could Drop During Retirement

Even though your credit rating will continue to be important when you retire, the truth is that the score normally declines for most people as they get older ... even if they have an excellent credit history and solid assets.

Why will your credit rating go down? 

Below are some common reasons:

If you are like most people, you will use less credit as you age.

Using your debit card to immediately pay cash for purchases does not help you maintain your credit score.

As you pay off your house, car, credit cards and other debts, your credit report and activity become "thin" and could virtually disappear.

Why is a Low Credit Rating a Problem in Retirement?

Today, many people are living 20 years or more after they retire.  While you may think you will never again make a large purchase during the remainder of your life, eventually you may want to downsize to a smaller home, purchase a new car or have other credit needs.

Lenders will look at your credit score if you decide to get a mortgage on a new home, take out an auto loan, apply for a new credit card, or co-sign for a student loan for one of your children or grandchildren.  If you decide to rent an apartment in a retirement community or other location, the management company and the utility companies will want to see your credit score.  In addition, your auto and homeowners insurance premiums will be higher if you have a low credit score.

How Can You Improve Your Credit Score Without Adding Debt?

The last thing you want to do in order to maintain a high credit score is take on new debt.  However, experts recommend some actions that will improve your credit score ... and they don't involve adding debt.

* Every couple of years, ask your credit card issuers to raise your limits by $500 to $1000.  Whenever you have a high limit, but a low balance, your credit score gets a boost.

*  Do not close old accounts, even if you rarely use them, for the same reasons mentioned above.  It is better to have lots of available credit, but a low balance.

*  Keep your main credit cards active by occasionally making a modest purchase using one and paying off the balance quickly.

*  Be careful to make all your payments on time.  If you travel, set up auto payments with your bank so that none of your payments are ever late.

*  If you have let your credit completely lapse and you don't have any credit cards, you may need to rebuild your credit history.  To do that, you may have to start with a secured card from your bank.

*  Check your credit report regularly to be sure there are no errors on it that could drag down your credit rating.  You can get a free copy of your report every year from each of the three major credit-reporting companies.  You can contact them individually or you can go to annualcreditreport.com.  You can also sign up on the free site CreditKarma.com to find out your current credit rating, get suggestions on how to raise it, and see your credit reports.

Take the above steps, protect your credit, and monitor your credit reports regularly.  Just because you are retired, you should not forget these simple precautions.

If you are interested in learning more about financial planning for retirement, common medical issues, where to retire, Social Security, Medicare or more, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional articles.

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