subject: Social Security And Expenses Before Retirement [print this page] Most people know that when you start taking Social Security payouts influences how large your payouts are, and can impact the gap between your retirement expenses and expected income. Receiving benefits earlier than normal retirement age translates to smaller monthly payouts, and working up to 65 as you collect these benefits causes you to forfeit a dollar for every two that you earn beyond $14,160. This aspect needs to be considered while you take your life expectancy and health condition into account.
Aside from the size of your Social Security benefits, you will also need to know if you have enough money to pay for the basics and have enough funds to manage the effects of rising costs of living in the future. For the first estimate, you will have to ensure that you have guaranteed income to cover essential expenses such as food, housing, and clothing, as well as money for utilities, automotive expenses, and different types of insurance. These costs can usually be tended to by guaranteed payouts from fixed-income investments like annuities.
The second factor, which concerns the effects of inflation, investment earnings, and your overall purchasing power, requires that you have enough to cover the gap between your estimated expenses and the certain increase in these costs.
When planning for these expenses, assume that you will be spending twenty to thirty years in retirement, and need to allocate fixed income sources and relatively risky growth-oriented investments to strengthen your buying power in retirement. For instance, you may encounter living expenses that are double those of current costs if you live 25 years more after you retire at an inflation rate of 3%. A lifestyle that requires $5,000 monthly in retirement now can cost you upwards of $10,000 a quarter of a century later.
To guard against the possibility of your nest egg running out due to rising costs, you may have to put some of your money into investments that yield enough for you to cope with and manage the effects of inflation, such as equities.
Retirees and seniors nearing retirement need money to keep pace with the effects of inflation, aside from taking care of expected expenses. As an older investor, you should not have too much risk in your portfolio by betting heavily on stocks, and nor should you risk too little by having a portfolio that is purely low-risk and low-yield. Make the best use of your Social Security payouts at the best time, and groom a balanced portfolio to make sure that you will have more than enough to live on during retirement.
by: Katherine Smith
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