Senior Finance: Savings and Investing Rules Change–Part 1

Aug 30th, 2010 | By Sharon Shaw Elrod MSW EdD | Category: Senior Finances

Established and respected financial experts generally offer good advice to seniors regarding their financial decisions.  The Washington Post recently published an article contributed by Kiplinger’s Personal Finance.  There are several suggestions that apply specifically to senior citizens and are worth some thought in this era of do-it-yourself retirement savings.  The article suggests some traditional rules of saving and investing are due for an overhaul.

  1. “Focus on dividends. Invest in stocks that pay dividends. Your options should continue to expand — more companies are paying dividends, and many of the elite dividend-paying members of Standard & Poor’s 500-stock index are upping their payouts to shareholders. True, dividends do not guarantee that a stock will be a winner. Some failed big banks used to pay high dividends, while high-fliers Apple and Google don’t pay a penny. But during periods of market volatility, when stock prices tend to bounce around in reaction to political and economic gyrations rather than accurately reflect corporate fundamentals, dividends can provide a predictable income stream.”  To this we would add consider talking with your financial advisor about investing in bonds for the same reason, and that is they provide a predictable income stream.
  2. “Personalize your emergency fund. The standard advice is to keep enough in savings to cover three to six months’ worth of expenses. But a lot depends on the stability of your job and the predictability of your income. The greater the risk your income could drop, the larger your emergency fund should be. If you think your job is in jeopardy, aim to save at least a year’s worth of expenses; ditto for individuals with erratic incomes, such as those who work on commission. Retirees should keep two to three years’ worth of expenses in money-market funds, short-term CDs or other liquid investments” (emphasis added).  Money market funds offer very little interest, so you might want to talk with your financial advisor about staggering short-term CDs so that they mature at regular intervals in the event you need the money.
  3. Age 66 is the magic number. Although you can begin collecting Social Security benefits as early as age 62, your benefits will be reduced by 25 percent or more. Better to hold out for full benefits at your normal retirement age — 66 if you were born between 1943 and 1954; older if you were born later. Once you reach your normal retirement age, you can continue to work while collecting benefits without fear of bumping up against the dreaded earnings cap, which trims $1 in benefits for every $2 you earn over the prescribed limit. In 2010, the earnings cap is $14,160. If you’re willing to wait until age 70, you can collect the maximum retirement benefit for you and your surviving spouse.”  Your financial picture is the determining factor for when you begin collecting Social Security.

There are several more suggestions which we will take up in the next Senior Finance article, Part 2.



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