This is a contribution from Bud Hebeler who runs Analyzenow.com

Q:  I am the high wage earner in our family, and I’ve already started my Social Security at age 62.  Is there any way I can get more.

A:  At your full-retirement-age (about 66), you can “Suspend” your Social Security and start again at as late as 70.  This will give you another 8% for each year of that delay.  So, when you started at 62, you got 75% of your full-retirement-age benefit.  By using suspend, you would get 32% more, so your age 70 benefit would be 75% x 1.32 = 99% of your full-retirement-age benefit.   If you would not have started at 62 and waited till 70, you would get 132% of your full-retirement-age benefit.  Hope this helps.

Q:  If I suspend my Social Security benefits at 66 to restart again later at a higher value, will my spouse’s benefit be changed?

A:  No, her benefits will continue through the suspension period.

Q:  I know that my fixed pension payments will be hurt by future inflation.  I can afford to save a little of it for the future to help out, but I don’t know how much?  10%, 30%, 50%???

A:  Yes, you can help protect yourself from moderate inflation, but it will be very difficult for very high inflation.  A simple formula is this for moderate inflation:  Spend only the after-tax amount multiplied by the amount of your age divided by 100.  So if your after-tax pension was $1,000 a month, and you were 70 years old, you would spend only $700 a month.  The other $300 you would save to cover future inflation.

A useful approximation that retirees can use is to determine how much of their investments they can withdraw for spending is to divide last year’s investment balance by the number of years the remaining investments must last.  So if you had $100,000 of investments and felt that it would be safe to exhaust investments in 20 years, then this year you could withdraw $100,000 divided by 20, or $5,000.

Both of these simple equations should allow you to almost cover inflation and yet give you about the same amount of purchasing power each year.

Q:  I have money in three different accounts, all taxed differently:  #1 Mutual funds not in any retirement account, #2 Funds in my IRA, and #3 some money in a Roth.  Which should I draw first in retirement?

A:  Most people do best if they withdraw taxable accounts first (your #1), deferred-tax accounts second (your #2), and tax-exempt accounts (your Roth) last.  However, you should always keep enough money in taxable accounts to cover this year’s spending plus an emergency reserve.  Another exception is when you must make Required Minimum Distributions (RMDs) from a qualified account such as your IRA after age 70 1/2.  Then spend the RMD first.  If that would be more than you need for your budget, save the rest of that RMD in a taxable account.  In actuality, most people will need to draw more than their RMD.  It is really important to have a retirement plan that you update every year to give you a basis for your budget.

Q:  My wife does not want to handle investments after I die.  She just wants to have deposits to her banking account which she can count on.  What do you recommend?

A:  First, make some kind of a guess what might be a reasonable amount to have on reserve for emergencies that would require a large cash payment without getting into debt.  Things to consider are health problems, children’s financial conditions, replacing expensive things like an automobile or roof, and the need for special care when very old.  Then consider putting the remainder in immediate annuities.  I would not do this all at once.  You might spread out the purchases over five or ten years.

Each year is likely to produce larger payments from a new immediate annuity both from the fact that the insurer will not have to make payments for as many years as you get older plus the fact that interest rates are likely to increase which will increase the amount of payments on a policy.

I have done this, but have also confined my purchases to inflation-adjusted immediate annuities.  These are harder to find, and the payments are less in the initial years, but I feel we are going to face a high inflation future.  If we go into a prolonged depression where prices actually drop, I have done the wrong thing selecting inflation-adjusted immediate annuities instead of fixed-payment ones.

Q:  I have just received a windfall cash payment.  How should I invest it?

A:  This is a more frequent question than you might expect though more people write to ask about what to do when they’ve lost some significant amount of money.  The first thing to do in either case, in my view, is to check your allocation of investments.  (There is a simple computer program on www.analyzenow.com that allows you do to this, or you can do it by hand.)  You want to know if you need more stocks or more fixed-income investments.

I use the rule that my nominal stock allocation should be a percentage equal to 100 minus my age.  So now at 79, my nominal stock allocation is 21%.  However, I do not take any rebalancing steps by selling or buying stocks unless the stock gets 5% more or 5% less than my nominal value.  In my case now, that’s 16% to 26% of my investments.  This formula has made me sell stocks when they are high and buy when low—just like you are supposed to do and not what most people end up doing.

I don’t recommend specific stock or bonds.  That is a choice that either you or a professional will make for you.  I personally prefer broad index funds for stocks like a low-cost S&P 500 index fund and individual issues for bonds (now mostly government bonds), but that may not be to your liking.  Incidentally, I do not count my pension or immediate annuity payments as part of my fixed-income investments.  I think that doing so is very misleading and leads to too heavy an investment in the stock market, particularly for the elderly.

Consider the advantages of a Retirement Financial Advisor

Find out more about the Risks to your Retirement