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AARP Article

4 Steps to Make Your Money Last a Lifetime

A simple, easy-to-use formula to make sure you never run out of cash 

As a financial columnist, I get asked the same heartfelt question over and over: “How do I make sure I don’t outlive my money?” And that makes sense. Surveys confirm that the No. 1 worry among older Americans is running out of cash. Fortunately, financial planners have come up with sound ways to prevent this. Collected here are their key rules for maintaining a livable income for life, plus case studies that show how to put these general rules into action. The goal is your peace of mind — knowing that you’re getting the most from the money you’ve saved and that you’ll always have enough.

The Magic Number

The key to long-term planning is knowing one essential number: how much money you can afford to spend annually. From there, you can adjust your expenses to fit.

You may be tempted to reverse the order — estimate your future expenses, then adjust your investment assumptions to make that spending appear possible. But that’s wishful thinking: a hope that big investment returns will rescue your budget. It leads to overspending early on, and regret later.

Instead, let’s focus on the real, guaranteed money you’ll have. There are two main sources:

  • Your personal savings and investments.
  • Your guaranteed income from other sources.

Key Steps

Step 1: Tally Your Guaranteed Income

The most common source is Social Security, which you may already be collecting. (If you’re not, get an estimate by calling Social Security or by opening a My Social Security account at ssa.gov.) You might also have a pension or annuity. If you own a reliable rental property, include the amount of rent you receive after expenses.

Step 2: Estimate Your Income from Savings

How much annual income can you prudently take from your savings and investments? To get the answer, there’s a surprisingly simple rule of thumb:

  • Add up the current value of your spendable assets, such as bank accounts, mutual funds, stocks and bonds. Include both retirement and nonretirement savings.
  • Subtract from that total a cash cushion to help cover near-term expenses.
  • Then take 4 percent of what remains.

That’s the “safe” amount of your assets that financial planners say you can afford to spend in the first year of retirement without running the risk that your savings will run out. In each subsequent year, take the same dollar amount plus an increase for inflation.

Example: Say you have $100,000 invested (plus a cash cushion). In the first year of retirement you could spend $4,000 of that money. If inflation is running at 3 percent, your second-year withdrawal would be $4,120 — the first-year amount plus an inflation increase. Follow this pattern in each future year.

Under this system, known as the “4 percent rule,” your savings should last at least 30 years and probably more. That forecast is based on the pioneering work of planner William Bengen, who tested 30-year spending rates against the historical returns of U.S. stocks and Treasury bonds. Some years the markets are up and some years they’re down, but the 4 percent rule takes that into account. As long as you keep withdrawing a steady amount of money, plus increases for inflation, you won’t run out. This rule would have protected your annual income even during 30-year periods that included the Great Depression of the 1930s and Great Stagflation of the 1970s. In better periods, savings lasted for many years more.

Step 3: Total Your Income

Add that “safe” 4 percent amount to your annual guaranteed income. For example, if you’re due $20,000 from Social Security and take $4,000 from a $100,000 nest egg, you’ll have $24,000 that you can safely use for living expenses, including any taxes.

Step 4: Set Your Budget

Finally, divide your expected yearly income by 12 to get your available monthly cash. And that’s it. Don’t worry about inflation; your income should keep up with inflation, thanks to Social Security’s cost-of-living increases and the annual increases you take from savings.

Special Factors

You’re Married

Calculate your spendable income three ways: once as a couple, once assuming that you die first, and once assuming that your spouse dies first. Don’t skip this analysis! Couples generally get two Social Security checks — one per spouse. The survivor will get only one. If you get a pension, it, too, might go down or go away when you die. Each spouse should know what might change after the other’s death.

You’re a Homeowner

Worried that these numbers won’t fund a decent standard of living? You might want to tap your home equity.

Home equity loans, however, can be hard for retirees to get. Instead, if you want to stay put, you might get a reverse mortgage: a loan against your home with no payments due until you leave it permanently. The debt is usually settled via proceeds from your home’s sale. Costs are high: If your house is worth $260,500 — the median U.S. price — a $50,000 credit line might carry $13,000 in one-time fees. (That money comes from your home equity, not your pocket.) Another option: Take in a renter. Or you could downsize, adding your home-sale proceeds to your investments.

You Fear Stocks

The 4 percent rule rests on the premise that you invest about half of your nest egg in low-cost funds — index mutual funds or exchange-traded funds — that hold big-company stocks and track the market’s moves. The other half is in Treasury bond funds. If you also hold funds with smaller stocks, Bengen says it’s safe to start at 4.5 percent.

If you avoid stocks, however, and own only bonds and CDs, 4 percent is too high. Your initial safe withdrawal rate is more like 3 percent, says economist Wade Pfau of the American College of Financial Services in Bryn Mawr, Pa. You might also start with that number if you retire early or own individual stocks, which are riskier than market-tracking mutual funds.

On the other hand, you might go higher. The original 4 percent rule was designed to protect you from the worst of times, says financial planner Jonathan Guyton of Edina, Minn. But most 30-year periods do just fine, and you might find that you’re skimping while money piles up. Guyton suggests starting with 5 or 5.5 percent. But do that, he says, only if you have at least 60 percent of your investments in stocks and you’re willing to cut back a little — say, 10 percent of your planned annual withdrawal — when markets fall. Five percent also makes sense if you want only 20 years of income — for example, if you don’t quit work until you turn 75.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Retirement Planning and the Younger Spouse

Adjust savings and withdrawals with the age gap in mind

Retirement planning advice for married couples tends to assume two things: You’re pretty close to each other in age (with the husband perhaps a year or two older), and the husband has always been the primary breadwinner. But in this age of late marriages, divorce and second marriages, what if there’s a much younger spouse? Large age gaps between spouses require planning.

I asked several personal-finance advisers what their advice would be. Here are their thoughts.

Expect to work longer

You may have to stay employed past the typical retirement age in order to build up a larger pot of savings. If, for example, your spouse is 55 and you die, your nest egg may have to fund your spouse for 40 years. For investment growth, allocate a higher percentage of your financial assets to stocks. If that makes you nervous, you’ll have to plan on a lower level of spending — which is the hardest thing for clients to understand, says Alex Feick of Paragon Capital Management in Denver.

Plan to spend less

If you are a typical retired couple, you can afford to spend 4 percent of your savings in the first year and give yourself a raise for inflation in each subsequent year. But with a much younger spouse, you should drop your withdrawal rate to perhaps 3 percent, says Aaron Parrish of Triad Financial Advisors in Greensboro, N.C.

Reduce withdrawals

At 70½, you have to start taking money out of an individual retirement account. If your spouse is more than 10 years younger, you can reduce the required withdrawals — and stretch your savings — by using the IRS’s joint life expectancy table to calculate the amounts.

Mind the insurance gap

If the older spouse carries the couple’s health insurance and switches to Medicare at 65, the younger spouse will need to buy an individual health policy. Currently, it’s an uncertain market, with premiums going up.

Adjust your Social Security

Spouses with big age differences should generally approach Social Security as if they were single, says Bill Reichenstein of SocialSecuritySolutions.com, a website that helps you maximize your benefits. If you have health issues and don’t expect a long life, take Social Security at 62. Otherwise, wait until 70.

Consider life insurance

If you haven’t saved enough, look into a 20-year term life insurance to cover your spouse’s future needs. You can get it even at 65, if your health is good. Check the rates at term4sale.com.

Plan your pension

If you’ll get a company pension, don’t take the lump sum payment when you retire unless your spouse is already well provided for. Instead, take the maximum joint and survivor option. It will pay your surviving spouse 100 percent of your pension for life.

The younger spouse might find his or her career interrupted and savings slashed due to the needs of an aging spouse for medical and personal care, warns Susan Pack of Pomeroy Financial Planning in Cincinnati. It’s something to account for in your financial planning — and all the more reason to manage your spending and save the max.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

How to Maximize Social Security Survivor Benefits

Thousands of widows and widowers leave money on the table each year

Here’s news: More than 11,000 widows and widowers who are now on Social Security could have had higher benefits if someone had bothered to tell them about their claiming options. That unhappy fact comes from the Social Security Administration’s Office of the Inspector General. It highlights how little people know about survivor benefits and what the choices are. Here are some tips:

Who gets survivor benefits?

They’re paid to the spouse of a worker who dies. You have to have been married for at least nine months, although there are exceptions — for example, if your spouse died in an accident. Qualified children get benefits, too, as do ex-spouses if the marriage lasted at least 10 years.

What does the benefit pay? 

You get 100 percent of what your late spouse was receiving, provided that you file at your own full retirement age — 66 or 67. (Note that the survivor’s retirement age can be up to four months earlier than the age required for full retirement benefits.) Payments can start at age 60 (50 if you’re disabled), but filing before your full retirement age reduces your check. If your spouse dies before claiming benefits, your payments are calculated as if he or she had reached full retirement age, plus any deferred retirement credits. 

If you have a retirement benefit based on your own work, can you take a survivors benefit, too?

Here’s where many people miss out. You can’t take both benefits at the same time. But you can raise your lifetime income by taking them serially — something that your Social Security rep might not explain. If your future retirement benefit at 70 will be greater than your full survivor benefit, and you expect to have a normal life span, take the survivors benefit right away, says Bill Reichenstein of SocialSecuritySolutions.com. Switch to your own retirement benefit at age 70, when it will have had years to grow. Conversely, if your retirement benefit at 70 is the smaller one, take that benefit right away; switch to survivors benefits once you reach full retirement age. (Unlike retirement benefits, survivors benefits do not grow after you reach that milestone.) Very important: To use either switching strategy, you must restrict your initial application to the one benefit you want to start with. Otherwise, you may be considered as having applied for both retirement and survivor benefits at once and won’t be able to switch. 

What if you’ve been married twice? 

You generally collect on the account of your second spouse. If you remarried after you turned 60, you can collect on the account of the spouse with the higher benefit.

How do you collect? 

Notify Social Security as soon as your spouse dies. Benefits generally start from the time you apply, not the time your spouse died. If you’re currently collecting spousal benefits on a retired worker’s account and they’re low, you’ll probably be switched to the higher benefit automatically. But if you have a retirement benefit of your own, visit a Social Security office to sort out your options. 

Why is timing so important? 

Imagine Martha, turning 62, widow of George, who died at 63 without ever claiming Social Security benefits. Assume their benefits due at full retirement age (67) would be:

• Martha: $1,800/month
• George: $2,000/month 

Scenario 1: 

Martha files for retirement and survivors benefits at age 62.

Total benefits over 20 years:

$382,100

Scenario 2:

Martha files for survivors benefits at 62, then retirement benefits at 70.

Total benefits over 20 years:

$474,200

Difference: 

$92,100

Source: SocialSecuritySolutions.com

(Originally published in The AARP Monthly Bulletin.)

AARP Article

The Spousal-Benefits Puzzle

Social Security can be as complicated as marriage

What do I get the most mail about? Winner by a mile is the question of when to file for spousal (or divorced spousal) benefits. Lots of you misunderstand the rules, with the result that you’re leaving money on the table.

So here is your guide to spousal benefits. I’m writing from the point of view of a wife filing on her husband’s earnings record, but the same rules apply to either spouse.

First, what is a spousal benefit?

It’s a payment originally designed for women who left the workforce to raise children. You need 10 years of work (40 quarters) to claim a retirement benefit of your own. If you worked less (or not at all), or your earnings were very low, you can get a spousal benefit based on the earnings of your husband.

How much is the spousal benefit?

It depends on your age when you claim it. If you wait until your full retirement age (somewhere between 66 and 67), you’ll get half of what your husband could get at his own full retirement age. If you claim earlier, you’ll receive less.

What if you worked 10-plus years and earned a Social Security retirement benefit of your own?

Here’s where claiming gets tricky. If your husband has not retired, you can file for a benefit based on your personal earnings. When he finally quits work and goes on Social Security, the spousal amount you can receive depends on your personal benefit’s size. If it’s higher than what you’d get as a spouse, you’ll continue to receive that same, higher amount, says Philip Moeller, coauthor of Get What’s Yours: The Secrets to Maxing Out Your Social Security. If your personal benefit is smaller, it will be topped up to the spousal level.

If you file when your husband has already retired, Social Security will normally assume that you’re claiming your personal and your potential spousal benefit at the same time. You will receive the higher of the two.

There’s an exception for people who were born on or before Jan. 1, 1954. If you put off your claim until full retirement age, you can file a “restricted application” for a benefit based on your spouse’s earnings, without also claiming the personal benefit you’re owed. At age 70, you can switch to your personal benefit, which will have grown at 8 percent per year plus the inflation rate.

What if you’re divorced?

You get the same benefits as a current spouse, if your marriage lasted at least 10 years and you are now single. Also, you can claim the spousal benefit even if your ex has not retired, provided that he is eligible for benefits and you have been divorced for at least two years. If you’ve been working, however, you will probably find that sticking with your own benefit is the better deal.

Special rules cover the disabled or retirees with children who are under 18. But for most of you, this road map works.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Don’t Rush Social Security

If you can afford to wait until 70, you’ll be better off

I usually encourage people to wait until age 70 before taking Social Security retirement benefits. By waiting, you get the maximum payout. Your monthly check will be at least 76 percent higher than if you started as soon as you qualified, at age 62. If you’re married and die first, waiting will also provide your spouse with a larger survivor’s benefit.

Many people need the money, so they start their benefits at 62. But what about those with substantial investment portfolios? Even if they can afford to wait, would they come out ahead if they claimed at 62 and invested those benefits for growth? 

I put this question to Bill Reich­enstein, a professor of finance at Baylor University in Waco, Texas, and cocreator of one of the most powerful Social Security calculators. He adjusted for various taxes (for example, the probable tax on a higher-income investor’s Social Security income) and assumed a 2 percent annual cost-of-living increase in benefits. After running several cases at the national average life expectancy for people who are 62, he found that they all produced the same answer: Financially, it’s better to wait. 

For example, say that you claim at 62 (accepting a much smaller check for starting early) and put the money into a nest egg invested half in stocks and half in bonds. You decide not to tap your savings to replace that Social Security income. You’d rather hold your income down so you can build your investments up. At 70, you start drawing on that nest egg, taking the monthly benefit you would have gotten if you had waited until 70 to collect. How long will your invested Social Security money last, after tax? 

Oops, only until age 81. That just about matches national life expectancy. But on average, people in the top two-fifths of the income range live longer than that. For a 50-year-old, that’s nearly 89 for men and 92 for women. Roughly half of the well-to-do will probably exceed even that extended age. Your invested nest egg will run out, leaving you only the discounted Social Security benefit that you took at 62.

Here’s another example. Say that, at 62, you decide to start your benefits and invest them but hold your income level by drawing an equal amount out of your IRA to help pay your bills. The result is about the same — your nest egg will run out before you reach your average extended life expectancy. What’s more, claiming at 62 could raise the percentage of your Social Security benefits subject to tax, Reichenstein says.

You might think you can beat the system by investing more of your Social Security benefit in stocks and less in bonds. Maybe stocks will soar, creating a nest egg that lasts until you’re 88 or older. But there’s also a greater risk of earning even less than Social Security would pay. 

You might consider starting at 62 and investing the benefits if you and your spouse are sure you’ll never need the money. That way, your heirs will inherit the account if you die early. If your health is poor, you might also start at 62, assuming your spouse will never need a larger survivor’s benefit. 

But if you think that investing your benefits will beat the lifetime returns that Social Security pays, well, you can always dream.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Navigate the Medicare and Social Security Maze

Here’s how to unravel the complicated programs

When you think about retiring, where will you get health insurance? “Simple,” you might reply, “I’ll go on Medicare.”

Ha! Welcome to an intricate decision, especially if you (or your spouse) keep working past the usual retirement age.

Medicare is for people 65 and up and comes in four parts. Part A, for hospital bills, is “free” and supported by the payroll tax, but also has copays and deductibles. Part B, which covers doctor bills, and Part D, which covers prescription drugs, charge monthly premiums. You might also buy private medigap insurance to pick up some costs that Medicare doesn’t cover. Medicare Advantage plans (known as Part C) cover all these health services in their benefit packages. Which should you choose?

To save money, browse your local Part C plans on medicare.gov. They often cost less because you’re generally required to use only the doctors and hospitals in the plan’s network. For more choice of providers, select Parts A, B and D.

If you (or your spouse) are still working at 65 or beyond and are covered by an employer health plan, consider signing up for free Medicare Part A. It can cover the portions of the hospital bills that your employer plan doesn’t pay once you’ve met the Medicare deductibles.

If you reach your full Social Security retirement age, say 66, and are still working, you have another option. You can augment your salary by filing for your full Social Security retirement benefit (at that age, payments are not reduced for people with earnings). When you file, you’ll be signed up, automatically, for Medicare Parts A and B. Keep the free Part A. But if you’re still covered by an employer plan, call Social Security and decline Part B. There’s no point paying extra premiums.

You have two choices if you’re under 65, you’re on your spouse’s health plan, and your spouse retires and goes on Medicare. Those close to 65 might go for the company’s COBRA plan that can extend employee coverage for up to 36 months. Alternatively, buy coverage on the health-plan exchanges or from an insurance agent.

There’s a catch-22 if your employer health plan comes with a health savings account. HSAs let you save money, tax free, to use to pay out-of-pocket medical expenses. You (and your employer) can make contributions. But you can’t have Medicare and make HSA contributions, too. If you claim Social Security, which comes with Medicare Part A, you can still pay bills with the HSA savings that you already have, but tax-free contributions stop.

Here’s advice on how to play your HSA, from Stephen Neeleman, M.D., founder of HealthEquity, which manages these plans for employers:

  • Consider deferring Social Security until age 70 if your employer makes the maximum HSA contribution ($3,350 for singles, $6,750 for a family).
  • If you have a family plan and your spouse goes on Medicare, you or your employer can still make the maximum family contribution.
  • You can’t contribute to an HSA if your working spouse covers you under a traditional employee plan. So decide which plan is best.
  • Stop making HSA contributions in the few months before you retire. Medicare Part A can be backdated for up to six months. Any HSA contributions you made during those months will count as taxable income.

Health insurance — not so easy after all.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Beware the ‘Tax Torpedo,’ Spousal Benefits and Mortgage Deductions

Q: My wife and I were shocked to discover that when we start taking the required distribution from our individual retirement accounts at age 701/2, our Social Security taxes will jump and we will be in a higher tax bracket. We’re 69. What can we do?

A: It feels natural not to tap an IRA early because those investments accumulate tax deferred. But as you’ve learned, a “tax torpedo” awaits. If your IRA is large, it’s often smarter to live on it for a few years after you retire while putting off filing for Social Security. You’ll shrink the IRA and hence the size of your required withdrawal at 701/2. Meanwhile, your Social Security account will grow by a guaranteed 8 percent for every year after 66 that you wait to collect, up to age 70. Social Security income is taxed less than IRA income, so this strategy often brings you out ahead. At this point, unfortunately, there’s nothing you can do. But I hope that your question will help others!

Q: You wrote that a divorced wife can collect spousal benefits on her ex’s account when she’s 62. Social Security says I can’t get half of his benefit until I’m 66.

A: We’re both right. If you were married at least 10 years, you get half of his benefit if you claim at 66, but less if you file at a younger age. If he dies, you can get survivor’s benefits as early as 60 (50 if you qualify as disabled). But again, claiming early means that your check will be reduced.

Q: I have a small mortgage on an investment condo. I can pay it off but I’d lose the tax deduction. What do you think?

A: The “value” of the interest deduction is a scam foisted on us by the mortgage industry. A deduction is not a gift! OK, in the 25 percent bracket, you write off $25 for every $100 paid in interest, but it costs you $75 out of pocket. How is that good? You’re always ahead when you have no debt.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Got Money Questions?

Jane Bryant Quinn on personal finance.

Q: My husband and I are wondering when would be the best time to collect our Social Security benefits.

A: I get lots of questions like this. The answer differs for every couple, depending on their ages and the size of their potential benefits. Sometimes one of you should take retirement a year or two early so that the other can claim spousal benefits on that account. Sometimes it’s better to wait. These services can provide the answers you need. SocialSecuritySolutions.com charges $20 for a report showing the best time to claim benefits based on the life expectancy you set; it costs $50 if you want to be able to play with various retirement assumptions and $125 for one-on-one advice. SocialSecurityChoices.com charges $39.99 for a claiming strategy based on three projected lifetimes. The services’ recommendations differ a little bit because of the math involved, but both are sound. AARP’s free Social Security Calculator can also help you determine your best age to claim benefits..

Q: Our disabled son’s inheritance will go into a special-needs trust. Can I use a codicil form from the Internet to change the trustee?

A: Please don’t! If the codicil’s wording — or the way you fill in the names or sign the document — doesn’t conform exactly to your state’s law, a court might not accept it. Your son’s welfare is too important to leave to boilerplate.

Q: How are individual retirement accounts divided among heirs? Can I leave my stocks to one child, my bonds to another and my CDs to a third?

A: Yes, you can divide your children’s inheritance in this way, says IRA expert James Lange of the Lange Financial Group in Pittsburgh. But do you really want to? The person who inherits the stocks might wind up much richer than the person who gets the CDs (or much poorer, if the market collapses). You might leave anger or envy behind. And what if you want to sell some stocks and reinvest in CDs? You’d be favoring one child over another. Instead, leave the total value of the IRA in percentages — say, divided into thirds. The trustee will split the assets according to the percentages you decree.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Are You Ready to Retire Early?

Use this checklist to assess your plans

Are you thinking about retiring early? Back when boomers were young they considered it almost a generational perk. Life’s second half should be merry years of play and rest.

Once you slide into your 50s, however, the question of early retirement grows complex. You might still need your paycheck. If so, case closed. And you might love your work and hope to pursue it for many more years.

If you’re ready to quit, however, there’s a lot to consider before casting loose. On the plus side, you’ll be able to take your life in any direction you want. On the downside, early retirement carries financial and emotional risks. Before telling your boss to take that job and shove it, run down this checklist to see if your plan is sound:

Do you really have enough money to finance a long retirement?

Don’t underestimate your longevity. At, say, 55, men have an average of 28 more years to live, and women 31 years. Roughly half of you will live longer than that. During your early years of play, you’ll be living primarily on your savings and investments, plus any special sources of income such as rents, royalties or perhaps a small pension. You’ll have to wait until 62 to qualify for Social Security retirement benefits. But by claiming that early, your benefit will be docked by as much as 30 percent, compared with what you would receive if you waited until your full Social Security retirement age (67 for today’s 55-year-olds). You might come to regret that.

Have you made a retirement budget you can live with?

To make it easy, sketch the budget for only your first retirement year. Start by listing the income that you can realistically expect after your paycheck stops. For budget purposes — and to feel fairly sure that your money will last for the next 30 years — assume that you’ll take only 4 percent out of your savings and investments. The total, from savings and other sources, represents your spending limit.

Now add up your expenses.If they’re higher than your spending limit, you’ll have to cut back — maybe sharply. That might not be hard if your largest budget item is your house and you’re happy to downsize. If not, you’re probably not ready, financially, to make the leap.

In fact, you’re not even ready if your budget just barely breaks even. Inevitably, you’ll run into costs that you didn’t expect. If you cover them by digging too deeply into savings, you might run seriously short of money a couple of decades from now. You might be better off staying at work for a few more years, cutting spending and concentrating on saving more.

When budgeting future withdrawals from your savings and investments, follow the classic 4 Percent Rule: Take 4 percent of your financial assets in Year 1. Take the same dollar amount plus an inflation increase in Year 2. In Year 3, take last year’s dollar amount plus another increase to cover inflation, and continue on that track. When you eventually sign up for Social Security (later, not sooner, I hope), that income will be inflation indexed, too.

Are you out of debt?

Giving up a paycheck when you’re carrying credit card debt is nothing short of madness.

Do you have health insurance?

Some corporations provide early retirees with health insurance until they reach 65 and qualify for Medicare. If you’re not that lucky, survey the private marketplace carefully to see what’s available at a price you can afford. Going bare can wreck your finances overnight.

Do you have a sustainable investment plan?

At today’s interest rates, you’d need a two-ton truck full of money to live off the interest paid by high-quality bonds or certificates of deposit. Low-quality bonds yield more but carry market risk. If you switch your savings into dividend-paying stocks, you’re facing market risk plus a lack of diversification. That’s because you’ll have too much money in financials, consumer staples and utility company stocks and not enough in the growth stocks that typically don’t pay dividends.

Financial planners might advise early retirees to hold 60 to 70 percent of their money in an index mutual fund that follows the total stock market (both large and small stocks), for 20- and 30-year growth. The balance would go into intermediate-term Treasury bond funds. They’re a good cushion because their prices usually rise when the stock market falls. Research shows that following this strategy in conjunction with the 4 Percent Rule gives you very high odds of making your money last for 30 years. Put an extra 5 percent into stocks if you need the money to last for 40 years.

If you’re married, how well do you and your spouse get along?

Retirement at any age throws you continually into each other’s company. Doing the 50 states in an RV will become a misery if you’re arguing all the time.

How flexible are you?

If your early retirement doesn’t work out because you’re bored or you’re spending money faster than you expected, be prepared to go back to work — part time, at least. That means keeping up your skills or finding new ways of deploying the natural talents you have. If you’re choosing a new place to live, you might consider its employment opportunities, just in case.

Who succeeds at early retirement?

People who have enough money (with “enough” depending on how high on the hog you want to live), plenty of personal interests and an adventurous disposition. Have a happy second half of your life!

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Maximize Your Social Security Benefits

Jane Bryant Quinn answers to your most common Social Security questions

Are you wringing all the money you can out of Social Security?

Based on my reader mail, I worry that some of you are losing out. Here are quick answers to the questions I get the most.

What can you apply for?

Retirement benefits, based on your own lifetime earnings. Spousal benefits, based on a living spouse’s lifetime earnings. Survivor’s benefits, payable after a spouse’s death.

You can effectively collect only one of these benefits at a time. Social Security automatically gives you the largest check you’re entitled to. Children might get benefits, too.

What’s the best age to claim?

This varies a lot. In general, your check is always reduced for life if you file for any benefit before what Social Security calls your “normal retirement age.” That’s 66 for people born from 1943 to 1954 and rises gradually for every birth year through 1959.

For those born in 1960 or later, normal retirement age is 67. There’s a fat bonus for collecting your benefits late: Social Security pays you an extra 8 percent for every year past “normal” that you delay your claim, up to age 70.

Can you claim a benefit as a spouse and later switch to benefits based on your own earnings record?

Yes, provided you wait to file for spousal benefits until you reach “normal” (or “full”) retirement age. You might collect a spousal benefit check from, say, age 66 to 70, then put in for your personal retirement benefit, which will have grown.

This strategy does not work, however, if you file before you reach your normal retirement age. Early filers receive a benefit amount equal to the spousal benefit or their own retirement benefit, whichever is higher. Never both.

Does it ever pay to collect benefits early?

For many married couples, yes. A wife, for example, might retire early on a reduced benefit. When her husband reaches normal retirement age, he can file for spousal benefits on her account. When he reaches 70, he can switch to his own, larger retirement account. How well this strategy works will depend on your ages and which of you is the higher earner.

What if you’re divorced?

You can claim spousal and survivor’s benefits on your ex’s earnings record if you were married for at least 10 years and are not currently married. (Exception: You can keep the survivor’s benefits if you remarry after you pass 60.) Your ex has to be eligible for Social Security, even if he or she has not yet retired.

What if your spouse dies?

If you’ve been collecting a spousal benefit, you can step up to the larger survivor’s benefit. To get the maximum amount, consider putting off your claim until you reach normal retirement age.

You might make a different choice, however, if you have a substantial Social Security earnings record of your own. You might take the survivor’s benefit early, then switch to your own, larger benefit at a later age. Play with the numbers until you get it right.

Helpful resources

(Originally published in The AARP Monthly Bulletin.)