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:
- Some advice for those under 50.
- How smart boomers should invest now.
- The true impact of an obliterated retirement.
