Recs

7

The Easiest Returns You'll Ever Find

Nobody I know has survived the past year without taking any losses in their portfolio. But that doesn't mean we've all gotten hurt equally by the bear market.

Of all those affected by falling stocks, those in their early 60s have probably been most troubled by the damage to their portfolios. Yet at least in one area, a simple decision can mean a huge boost in income -- at a time when you're the most worried about what the future will bring, and how you'll make ends meet.

Who got hurt the most
Those who are within a hair's breadth of retiring found themselves at ground zero when the stock market started its steep descent. As hard as it's been for everyone, other age groups have some advantages over the near-retiree set:

  • Young investors may have had more of their money in aggressive stocks like Fossil (Nasdaq: FOSL  ) and First Solar (Nasdaq: FSLR  ) , and therefore have seen greater percentage losses in their accounts than the overall market. But they typically had smaller amounts invested, so the dollar value of what they've lost is a lot lower.
  • Folks in their 40s and early 50s had time to accumulate more than younger adults, so they took bigger absolute hits to their net worth. But with 15 to 25 years left before they have to retire, these folks have plenty of time to recover from the bear.
  • Investors who have already retired typically cut back on their risk levels. With top-quality stocks like Wal-Mart (NYSE: WMT  ) , Abbott Labs (NYSE: ABT  ) , and Wells Fargo (NYSE: WFC  ) holding up much better than the S&P 500, as well as elevated allocations to great-performing Treasury bonds, some seniors have weathered the storm better than they ever could have hoped.

Meanwhile, near-retirees have the worst of all worlds. With large nest eggs and the end in sight, many kept their risk levels high in the hopes of bringing Quitting Day a year or two closer. Now, they're looking at extending their careers significantly, just to make up for part of their losses.

The sure thing in retirement
Now more than ever, it's clear that most elements of your portfolio are beyond your control. Sure, you can make predictions based on average past returns and historical price trends. But with even venerable names like General Motors (NYSE: GM  ) and Ford (NYSE: F  ) begging for support just to survive, predicting exactly how anything will play out in your portfolio during these critical years in your life is simply impossible.

With that in mind, though, you do have some control over one part of your retirement support system. When you decide to take Social Security will greatly affect how much money you and your loved ones receive throughout your golden years.

How it works
If you were born between 1943 and 1954, then your full retirement age is 66. That means that after looking at your work history, Social Security will calculate a monthly payment that's based on how much you earned.

But you don't have to take Social Security benefits right on your 66th birthday. You can take them as early as age 62, or as late as age 70. If you start getting payments early, they'll be smaller than your full benefit. If you wait until after age 66, then they'll be bigger. The chart below gives an example, based on a calculated full monthly benefit of $2,000 per month.

Retirement Age

Benefit

% Change Over Retiring 1 Year Earlier

62

$1,500

N/A

63

$1,600

6.7%

64

$1,733

8.3%

65

$1,867

7.7%

66

$2,000

7.1%

67

$2,160

8%

68

$2,320

7.4%

69

$2,480

6.9%

70

$2,640

6.5%

Source: Social Security Administration.

So if you wait, you're essentially earning a return on that monthly payment -- and a fairly healthy one, at that.

Granted, there's a big trade-off here. If you wait to take Social Security at age 70 instead of getting it when you turn 62, you'll get 76% more each month -- but you also give up eight years' worth of payments.

However, in considering what to do now, remember that your decision may not just affect you -- it can also have an impact on what your spouse and dependents receive after your death. Giving up money now to ensure a more prosperous retirement later for your entire family may be exactly what you want to lock in.

Times are especially tough if you're close to retirement. But while the bear market may have caught you unaware, you're not powerless to recover. By weighing all your options and including Social Security as a critical component of your retirement income, you can make decisions that will help you get back on the right track.

To learn more about retirement-related decisions, read about:

Still worried about your retirement? Get the help you need from our Motley Fool Rule Your Retirement newsletter. Each month, you'll learn what you need to know to protect your wealth from the bear market and make the most of all your resources. Take a no-obligation test-spin free for 30 days and see how Rule Your Retirement can help you.

Fool contributor Dan Caplinger hopes that Social Security will still be around in 2037. He doesn't own shares of the companies mentioned in this article. Fossil is a Motley Fool Hidden Gems recommendation. Wal-Mart is a Motley Fool Inside Value selection. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy gives you great returns.


Read/Post Comments (1) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 791685, ~/Articles/ArticleHandler.aspx, 9/30/2014 6:20:22 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated 9 hours ago Sponsored by:
DOW 17,071.22 -41.93 -0.25%
S&P 500 1,977.80 -5.05 -0.25%
NASD 4,505.85 -6.34 -0.14%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2014 4:00 PM
ABT $41.90 Down -0.11 -0.26%
Abbott Laboratorie… CAPS Rating: *****
F $15.11 Down -1.22 -7.47%
Ford CAPS Rating: ****
FOSL $95.94 Down -0.69 -0.71%
Fossil CAPS Rating: ****
FSLR $67.52 Down -0.46 -0.67%
First Solar CAPS Rating: **
GM $32.22 Down -0.95 -2.86%
General Motors CAPS Rating: **
WFC $51.69 Down -0.18 -0.35%
Wells Fargo CAPS Rating: ****
WMT $76.08 Down -0.41 -0.54%
Wal-Mart Stores CAPS Rating: ***

Advertisement