Dear Liz: I sold my home two years ago and still have not done anything with my gain of $200,000. It’s in a one-year certificate of deposit so at least it’s earning something while I try to figure out what to do with it. I’m 66, retired and have an IRA of $500,000 that’s invested in the market. I get $1,450 from that plus a monthly Social Security check of $1,750.
I know that my hesitation has to do with the crash of 2008. I know that things have recovered nicely but I just don’t want to feel like I did then, watching my money disappear. I don’t know if I’m the only older person who has this fear of riding it out again.
Answer: Few who watched their portfolios plunge in 2008-09 look forward to experiencing that again. But risk is inextricably tied to reward. If you want the reward of inflation-beating returns that stocks offer, you must accept the risk that your portfolio can go down as well as up.
And you probably do want that reward for a big chunk of your investments. Retirees typically need about half of their portfolio in stocks to generate the kinds of returns that will preserve their buying power and help insulate them against running short of money.
That doesn’t mean all your money has to be at risk. You still need to have a good stash of savings sitting in safe, liquid accounts to help you ride out any market downturns or emergencies. Financial planners often recommend that their retired clients keep six months’ worth of expenses in an emergency fund, and some like to see 12 months’ worth. Beyond that, though, your money probably should be working for you, not simply dwindling away to taxes and inflation.
If you find yourself unable to move forward with a plan for this money, consider hiring a fee-only financial planner who can help you review your options.
Social Security strategies vary by age
Dear Liz: My husband has been on Social Security disability since he was 61. He’s now 69 and receives $1,700 a month. I will be turning 66 next year. I still work and want to file for spousal benefits, which would be half of his benefit, but I’m not sure what the best option is. I know I would get $850 a month until I turn 70, when I would get my maximum retirement benefit. Or do I file for my retirement benefit now, which is more than half of my husband’s?
Answer: Since you were born before Jan. 1, 1954, you still have the option of filing a restricted application at 66 for spousal benefits only and then switching to your own retirement benefit when it maxes out at age 70. Since it’s still available for you, you’ll probably want to take advantage of it since you’ll almost certainly get more in total from Social Security that way.
People born Jan. 1, 1954, and later won’t be able to file restricted applications for spousal benefits. Instead, when they apply for benefits, their own retirement check will be compared to their spousal benefit and they’ll get the larger of the two amounts. They no longer have the option of applying just for spousal benefits and then switching to their own benefit later.
Since you’re the higher earner, it makes even more sense to put off taking your retirement benefit as long as possible. Not only will you probably maximize the amount you get, but you’ll also be maximizing the spousal benefit that one of you will have to live on when the other dies. (Remember that at death, one Social Security benefit disappears and the survivor must get by on the larger of the two.)
Don’t value credit rewards over scores
Dear Liz: You’ve advised people that “it’s important to keep your credit utilization down, even if you pay in full (as you should).” That may be good advice regarding one’s credit score, but there is another perspective. Although we pay in full every month (and have paid no credit card interest since 1971), charging almost every purchase or expense has earned us three pairs of round-trip frequent flier miles tickets to Paris — one pair first class and the other two business class — in the last 15 years.
Answer: Maximizing rewards shouldn’t come at the cost of your credit scores, particularly if you want to qualify for future cards that offer tempting sign-up bonuses. You can continue to charge away, as long as you either spread the charges across several cards or make two or three payments every month on each card you use to keep the balances from getting too high.