How to Maximize Social Security Benefits for a Married Couple

Here is the scenario: You and your spouse are approximately the same age, and are asking yourselves and your financial guru about social security benefits. Chief in your minds is how to maximize social security benefits for a married couple.

You are approaching the age when you need to make decisions about taking Social Security payments. Neither of you are required to take such payments at any age, but you could certainly use one of the monthly payments for the expenses you have.

It is fairly common knowledge among people who are near or at the age when they can begin to accept Social Security payments that the longer they wait, the more they will receive in their monthly payment. In your situation, you probably know which spouse is in line to get the most money. That would be the one of you that made more money and thus contributed more.

So, let’s say you two have decided one of you needs to start taking Social Security benefits now. But which one of you? Do you take the higher earner’s benefits now and then add the lesser amount later, or do you let that greater amount grow and take the lesser amount now? How do you maximize Social Security benefits for a married couple?

A Couple’s Guide to Claiming Social Security

It’s a complicated question with a complicated answer. There are several points to consider before making the decision of whose benefits to claim first.

The Most Beautiful Part of Social Security

As federal entitlement programs go, Social Security is one of the most successful and most popular. Many senior citizens rely on their Social Security payments as their sole income, while others use it to supplement income from investments and savings. It’s a good idea to devise a retirement budget, considering all of the money you will have coming in — and how much will be going out.

But where Social Security best serves American citizens is in its treatment of married couples who likely have two Social Security accounts to consider.

Thanks to the creation of spousal benefits, married couples can employ some fairly complex mathematical equations to determine how best to maximize their benefits over time. Spouses who are going to hit full retirement age at the same time have an easier time with those complex mathematical equations because they are comparing oranges to oranges. This article will explain spousal benefits a bit later.

Terminology: A Reminder

There will be multiple references to “full retirement age,” which originally was 65 years of age, but has increased over time to 67 for workers born in 1960 or thereafter. Full retirement age is 66 years and 10 months for anyone born between 1955 and 1959, and 66 years for those born before 1955.

Once you turn 62, you can begin receiving Social Security benefits, but once you start, you are locked into that amount though you have 12 months to change your mind and halt payments. The longer you wait to start receiving benefits, the more money you receive monthly, up to the age of 70.

So, now let’s start figuring out which spouse should take Social Security benefits first when both spouses are approximately the same age.

Deciding Factor: Health

If one spouse earned much more money in their career than the other, their monthly Social Security payments will be significantly higher. But a couple must decide if the higher amount is needed for living expenses, because that higher amount is only going to grow up to age 70 as long as you don’t take the benefits early.

If your budget can allow you to wait, there are two other key determining factors to consider when deciding who should accept Social Security first: each spouse’s personal health prospects and each spouse’s desire to continue working past the age of 62.

Here is how health plays a role: If a spouse dies before they reach their full retirement age and have not started taking SS benefits, the surviving spouse will receive what the deceased spouse would have received at their full retirement age.

If a spouse dies after their full retirement age without taking benefits, the surviving spouse gets the full retirement benefit plus a Delayed Retirement Credit. If a spouse takes benefits before their full retirement age and then passes away, the surviving spouse gets the lower monthly amount rather than the larger full retirement amount.

This effectively causes citizens who have reached 62 years of age to hold off taking their SS benefits at their first opportunity. It also makes couples play a form of Russian Roulette; a spouse who might be considered most likely to die before reaching their full retirement age should NOT take their SS benefits early. (That will make for pleasant dinner conversation.)

Deciding Factor: Work Intentions

Now let’s consider work intentions. If one spouse wants to continue working past age 62, he or she should not take Social Security benefits because every dollar earned over a certain amount each month decreases their Social Security benefits. The amount you can earn each month is dependent on when the working spouse will (or did) reach their full retirement age.

However, if one spouse wants to continue working and NOT take their Social Security benefits yet, they are still contributing tax dollars to their Social Security account and their eventual monthly Social Security payments will be that much larger.

(This stipulation has become increasingly significant as life expectancy among men increases. Some people who need their Social Security payments do not want to retire completely, so they are allowed to make up to a certain amount a month without cutting into their monthly benefits.)

Now, About Those Spousal Benefits

Marriage is often touted as a great financial decision (two can live as cheaply as one; the married status for filing taxes) but it really comes in handy when it is time to collect Social Security benefits.

There are several factors involved, but the basic benefit is that when one spouse files for benefits, the other spouse may receive up to half of the first spouse’s benefits as well. The spousal benefit is only for those spouses who are also at least 62 years old, which works for the scenario this article is based upon.

Spousal benefits are also reduced if the first spouse takes his or her benefits before full retirement age.

The federal website for the Social Security Administration has a wealth of information as well as benefit calculators. There are also more than 1,200 field offices around the country with knowledgeable staff able to help you navigate your Social Security decisions with a focus on maximizing your benefits.

At least in the case of Social Security, the federal government really wants citizens to receive what they deserve as long-time members of the American workforce.

Kent McDill is a longtime journalist who has specialized in personal finance topics since 2013. He is a contributor to The Penny Hoarder.




How to Make a Retirement Budget So You Don’t Outlive Your Savings

You’ve spent decades in the workforce earning a living, your schedule dictated by the demands of the job. All the while, you’ve been steadily adding to your savings so that one day you could get to this point. Retirement.

Now, there’s no alarm to wake you up in the mornings and no boss to answer to. You can finally get around to crossing items off your bucket list — or simply have the opportunity to catch a midweek matinee movie.

The world is your oyster.

Life may feel more relaxed and carefree, but that doesn’t mean you no longer have financial responsibilities. In fact, now’s the time you might need to be even more diligent about budgeting your money.

Living on What You Have Saved

When you say goodbye to your 9-to-5, you also say goodbye to your regular paycheck. You’ll rely on Social Security benefits, the money in your retirement accounts and any additional income, like a pension, to cover your expenses.

Sticking to a budget is vital so your retirement savings last. That money you’ve squirreled away in your working years has to stretch for decades. Remember, life on a fixed income means there are no bonuses, overtime or promotions to increase your cash flow.

How Much Should You Have Saved?

If you’re already retired or nearing retirement age, hopefully you’ve done the math to determine whether you’ll have enough money to keep you afloat.

One popular rule of thumb is to have 25 times your average annual expenses saved up. But how much money you need in retirement depends on many factors, like your age, where you live and the type of retirement you want to enjoy.

If you want to retire at 60, rent a highrise in New York City and travel every couple of months, you’ll need considerably more money than a retiree who leaves the workforce at 70, lives in a paid-off home in rural North Dakota and just stays home and knits.

There are also a lot of unknowns in retirement — like what medical conditions you could develop and exactly how many years you’ll need your money to stretch.

That’s why it’s important to have robust retirement savings and be cognizant of your spending in your golden years.

How to Make the Most of Your Nest Egg

To make your savings last, you’ve got to be prudent about how much you withdraw each year.

“The gold standard has always been 4%, but new research has revealed a different number,” said Chuck Czajka, a certified estate planner and owner of Macro Money Concepts in Stuart, Florida.

He said withdrawing 3% a year instead gives you a 90% success rate to last through a 25-year retirement.

Keep in mind, once you’ve determined how much you can withdraw per year, you’ll want to divide that amount by 12 to come up with how much to withdraw each month. Czajka recommends withdrawing money from your retirement accounts on a monthly basis rather than taking out all you’d need for a whole year.

Meeting with a financial adviser can help you come up with a personalized plan to fit your individual situation.

“As people approach retirement, they should work with a retirement professional to determine their expected retirement income,” said Lisa Bamburg, a registered investment adviser and owner of Insurance Advantage in Jacksonville, Arkansas.

Two grandmothers dress in funky classes and brightly colored shirts.
Getty Images

Factoring in Income Beyond Your Savings

In addition to the money you’ve saved in your 401(k), individual retirement account (IRA) or other investment accounts, a portion of your retirement income will come from Social Security benefits.

You can start collecting Social Security benefits as early as age 62, but you’ll receive less money per month than if you waited until full retirement age — 66 or 67, depending on when you were born.

If you delay claiming Social Security benefits past your full retirement age, you’ll receive even more each month. However, there’s no additional increase once you’ve reached age 70.

Pro Tip

This calculator from the Social Security Administration gives you a rough idea of your retirement benefits. This retirement estimator is more accurate but requires plugging in your personal info.

In addition to Social Security, you might have other sources of retirement income, like money from a pension plan or an annuity.

A report from the National Institute on Retirement Security found that many retirees don’t have a great diversity in their retirement income, though more income sources provide for a more secure retirement.

The report found less than 7% of older Americans have retirement income that’s made up of a combination of Social Security, a pension plan and a retirement contribution plan like a 401(k). About 40% rely on Social Security alone.

“Social Security benefits typically are not the equivalent of what it takes for most people to maintain their standard of living,” Bamburg said.

The Social Security Administration states its retirement benefits only replace about 40% of earnings for people with average wages — more for low-income workers and less for those in higher income brackets.

How to Create a Retirement Budget

Once you determine what your retirement income will be, it’s time to make your retirement budget.

If you’ve already been budgeting, you’re off to a great start, though your new budget will likely differ from that of your working days.

Take Stock of Your Essential Expenses

First you’ve got to get an overall look at your current spending. If you don’t already have a budget or track your spending, pull out the past several months of bank or credit card statements. Dig up old receipts if you tend to pay in cash.

Reviewing the past three months will help you find what you spend on average, but an even deeper dive — looking at the last six to 12 months — will give you a more accurate picture and will reveal things like your annual car insurance bill and holiday spending.

Group your spending into categories to get a good picture of where your money’s going. You’ll have fixed expenses, like your mortgage, where the cost stays the same each month. Other expenses, like groceries or utilities, will vary. For those, you should calculate your average monthly spend.

Account for Changes

After leaving the workforce, you’ll probably notice some differences in your spending. You’ll no longer have to pay for downtown parking near the office, dry cleaning your suits or pricey lunches with coworkers. Your monthly retirement contributions will be a thing of the past.

However, not everything will be budget cuts. You’ll have to account for new retirement expenses, like health care premiums your employer previously covered. If you’re 65, you can get health insurance through Medicare, but it’s likely you’ll have increased out-of-pocket medical costs as you age.

And of course, now that you have an influx in free time, you can pursue the things you’ve always wanted to do — which means more new expenses.

A group of retired women have fun.
Getty Images

Make Room for Fun in Your Retirement Budget

A big part of retirement planning is determining what type of lifestyle you want to have when you’re no longer at work 40 hours a week.

Do you want to travel? Spend more time with your grandkids? Explore a new hobby? After you’ve covered your essential expenses, how you spend what’s left in your budget is totally up to you.

Don’t forget to include run-of-the-mill discretionary expenses, like cable, magazine subscriptions and dining out. It won’t all be cruise ships and Broadway plays.

If you’re married, be sure to share your vision for retirement with your partner, so you’re both on the same page about how you’ll spend your time and money.

Adjusting Expectations to Reality

As you create your monthly budget, you may discover you don’t have nearly as much money as you thought you’d have in retirement. That doesn’t mean you have to live out the rest of your life kicking yourself for not saving more. You have a few options to get by.

Take another look at your living expenses. Are there any ways you can cut costs? Slash your food spending with these tips to save money on groceries. Consider downsizing to a smaller home.

When it comes to your discretionary spending, look for ways to enjoy a more frugal retirement. Take advantage of senior discounts. Check out free activities at your local community center. Find ways to save money on traveling.

Although retirement means leaving your working days behind, you may find it necessary to pick up a side gig or part-time job to supplement your income. Seek out opportunities that match your interests so it doesn’t feel like work.

Don’t forget to enjoy this new stage of life. You worked hard — you deserve it.

Nicole Dow is a senior writer at The Penny Hoarder.

Related Posts




When Should You Open a Roth IRA for Kids?

A lot of people regret not investing in their 20s. But what if you could go back in time even further and invest some of the money you earned from babysitting or mowing lawns in your teens?

If you invested $100 a month at age 25 and earned 8% annual returns, you’d have over $320,000 by your 65th birthday. But if you started investing at 15? You’d have over $710,000 by age 65.

Obviously, there’s no way to turn back the hands of time. But it could be possible for you to give your kids the gift of compounding and tax-free growth by opening a Roth IRA on their behalf.

The Rules on Starting a Roth IRA for Kids

Opening a Roth IRA for kids is perfectly legal as long as your child has earned income. Age doesn’t determine eligibility. If your kid is the Gerber Baby, they would qualify as long as their paychecks don’t put them above the Roth IRA income limits.

Your kid is eligible if they make money at a part-time job or they earn income through babysitting, tutoring or odd jobs. However, if they’re earning income from work that doesn’t come with a W-2, check with a tax pro because they could be responsible for Social Security and Medicare taxes.

What’s not allowed: You make up a job for them and say they’re on the family payroll. If you own a business, you’re allowed to employ your minor children, but you have to pay them what the IRS considers a reasonable wage. Paying your teen $10 an hour to do clerical work would probably count as reasonable. But making your 4-year-old a business associate with a $6,000 salary? Not so much.

You’ll need to open a custodial Roth IRA for a minor child. That means they’ll own the account, but as the child’s parent, you’ll make the investment decisions until they reach the age of majority, which is between 18 and 21, depending on the state. Once they reach the age of majority, they’re in control of the money.

Pro Tip

Not all brokerages have custodial Roth IRAs. Three brokerages that offer Roth IRAs for kids: Charles Schwab, Fidelity and T.D. Ameritrade.

Technically, it doesn’t matter who contributes to the account. You’re allowed to fund it, or your child can contribute money they’ve earned. But their contribution is capped at their earned income for the year. So if they earn $4,000 in 2021, that’s their maximum contribution even though someone under 50 can contribute up to $6,000.

The great thing about a Roth IRA for kids is that unlike with a traditional IRA, a Roth IRA is funded with post-tax dollars. Your kid probably doesn’t need a tax break now. Minors typically fall into a low tax bracket or their earnings are low enough that they don’t pay taxes at all. By paying any taxes due now, their money will compound for decades. When they reach retirement age, it’s theirs completely tax-free.

Plus, the Roth IRA rules allow you to access the contributions (but not the earnings) any time without taxes or a penalty.

Will a Roth IRA Affect Financial Aid Eligibility?

Retirement account balances don’t affect financial aid eligibility, regardless of whether they belong to the parent or the child.

But withdrawing money from a Roth IRA for tuition will count against financial aid, whether the account belongs to the parent or child. Even if you limit the withdrawal to the contributions — meaning you or your child won’t owe taxes or a penalty on the withdrawal — it will count as income for financial aid purposes.

This can get confusing because the ability to take penalty-free withdrawals for tuition is one of the much-touted Roth IRA benefits. It’s true that using a Roth IRA for tuition won’t result in a 10% IRS penalty if the account is at least 5 years old (though the owner of the account will pay income tax if they touch the earnings). But for many families, the reduction to financial aid simply isn’t worth it. A 529 plan is typically a better bet when college savings is the goal.

Let’s recap all that: Having a Roth IRA in your child’s name won’t affect their college financial aid award. But if they withdraw that money for any reason, they can significantly reduce their financial aid.

Should You Open a Roth IRA for Your Kid?

Obviously, the answer depends a lot on your kid. Here’s when a child’s Roth IRA makes sense and when you should avoid it.

Consider a Roth IRA for Your Kid if:

  • They’re willing to contribute at least part of their earnings. Sure, you could just throw money into a Roth IRA for your kid, but that won’t teach them the value of investing. A better solution is to match their contributions. You can show them the importance of taking advantage of a 401(k) plan match later on. Plus as their money grows, they’ll see that it pays not to spend every cent.
  • You’re OK with them getting control of a nice chunk of change at age 18 or 21. Once your child reaches age 18 or 21, depending on your state, the money is theirs to control. Obviously you can’t predict what your kid will do in the future, especially if they’re young. But if your child is older and they’ve been responsible with money thus far, that’s a good sign they can handle a Roth IRA.
  • They don’t need the money for college. Roth IRAs are designed for retirement, not education savings. If the goal is to use the money for college, a 529 plan is a better option.
  • You’re willing to manage the account. Because minors need a custodial account, you or another trusted adult will be responsible for the account until they reach majority age.

Don’t Even Think About a Roth IRA for Your Kid if:

  • You’re making up a fake job for them on the family payroll so that they’ll be eligible. This is illegal. If your child’s earned income comes from your business, they need to have a legitimate job and a reasonable wage in the eyes of the IRS.
  • They’re not willing to chip in. If your kid isn’t interested in contributing their money, they probably aren’t mature enough to have a Roth IRA.
  • You think they might withdraw money early. The big reasons to open a Roth IRA for your kid are to give their money extra time to compound and lock in their ultra-low tax rates. But if your child is likely to withdraw the money, they’ll miss out on compound growth. They’ll also pay taxes and a 10% penalty in most cases if they take out the earnings before age 59 ½.
  • Your own finances aren’t in shape. If you’re way behind on your own retirement savings or you don’t have a good handle on your finances, catching up is your No. 1 focus. Your child has plenty of time to save for retirement. Getting your own finances in shape so you don’t have to depend on your kids when you’re older is a far better gift for your kids than a Roth IRA.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].




6 Ways to Bounce Back after Being Forced into Retirement

When it comes to retirement, expectations and reality may collide, resulting in what might seem unthinkable – sudden retirement. Unexpected retirement can throw a wrench in the best laid plans, or worse, force a need for fast planning if none exists.

While Americans anticipate, on average, to retire at age 66, the average retirement age is actually 65 for men and 63 for women. Half of retired Americans surveyed by financial services firm Allianz reported that they retired earlier than they planned. Why? Just over one-third of those surveyed reported unanticipated job losses, while one-quarter reported health care issues.

What those reasons have in common is this: a lack of choice. In other words, working Americans faced factors beyond their control that forced them to retire.

Fortunately, if you’re on the wrong end of an unexpected event that forces you to retire — or if you have to retire for your own reasons — there are approaches you can follow to get organized financially, including these six strategies.

Strategy #1: Avoid reactive decisions

Because sudden retirement is, well, sudden, you may be tempted to make a big change, such as selling your house or moving away from your longtime home. In situations out of your control, it may feel better to do something rather than nothing.

However, it is much better to take your time and assess the situation before taking action. You may end up regretting a quick decision, especially if it is a major one.

Strategy #2: Determine your sources of income

Your sources of income likely include Social Security and income from your retirement savings. They may also include a defined benefit pension or rental property income.

You can claim Social Security as early as age 62. While taking Social Security early will reduce your overall benefit over waiting until you are older by up to as much as 30%, you may not have a choice if you need the income. If you have a spouse or partner, it’s important to coordinate claiming approaches.

To receive your full Social Security benefit, you’d need to wait until your full retirement age to claim it. For anyone born in 1960 or later, full retirement age is 67. For those born between 1943-1954, full retirement age is 66. If you were born between 1954 and 1960, retirement phases up in two-month increments between ages 66 and 67.

If you claim Social Security before your full retirement age and continue working, your benefit will be reduced if you exceed a certain income threshold. In 2021, Social Security deducts $1 from your benefit for each $2 earned above $18,960.

Your retirement savings are a significant source of retirement income. The more income you can squeeze out of those savings, the less you will have to tap the actual principal. Spending principal now means you won’t have it later to generate income.

If you have a defined benefit pension, you’ll have to decide whether to take a lower payout to provide for your spouse after you’re gone and whether to get a lump sum that you can manage yourself or opt for annuity payments on a monthly basis.

Strategy #3: Balance expenses and income

In sudden retirement, there’s not much luxury or time to optimize your sources of income. That means you need to ensure that your expenses match your available income. This is where creating a budget comes in handy.

Start with your non-discretionary expenses — the expenses you must pay each month — including your mortgage payment, property taxes, utilities, car payment, groceries, internet, etc.

Then move on to your discretionary expenses, such as eating out or takeout, entertainment, such as streaming services, vacations, etc. Use your online banking app or checkbook register to get a handle on your monthly spending.

Once you’ve got a handle on your monthly expenses, you’ll have increased insights into how your money is spent. Budget-tracking apps such as Clarity Money, PocketGuard or YNAB can collect spending information going forward so that you can refine your budgeting numbers over time.

Once you’ve gathered data about your expenses, match it up with the income sources that you’ve already identified to locate any gaps. If you prefer to work by hand, get a pad of paper and create two columns — one for expenses and the other for income. If you prefer to work on the computer, create a Google Sheets or Microsoft Excel worksheet.

If you identify an imbalance between expenses and income, you’ll either have to decrease your expenses or increase your income or some combination of the two to create the right balance.

It’s vital to achieve a balance between expenses and income because retirement can last a long time. The Social Security Administration estimates that a woman turning 65 in 2020 will live to 86.6, and a man will live to 84. In addition, one out of every four 65-year-olds will live past age 90, and one in 10 will live past 95.

Strategy #4: Assess health insurance options

Many sudden retirees are younger than 65, which is the age when you qualify for Medicare. That means you need to find insurance coverage. If you get an exit package from your former employer, you may be able to negotiate health insurance coverage until you turn 65.

Some employers offer short-term cash payments to help toward the cost of insurance coverage. You might be able to access COBRA coverage from your former employer, which is available for up to 18 months after separation from employment. However, COBRA can be quite expensive.

An option for anyone seeking health insurance is the U.S. Healthcare Exchange, aka Obamacare. Several individual states — including New Jersey, Pennsylvania, Maryland, California, Colorado, Connecticut, Idaho, Massachusetts, Nevada, Minnesota, New York, Rhode Island, Vermont and Washington — as well as the District of Columbia have their own exchanges. If you live in a state that doesn’t have its own exchange, use the federal exchange.

Federal and state exchanges offer income-based subsidies for coverage. That means if you have a significant amount of assets, but not a lot of income, you may receive a significant subsidy. Those websites facilitate exploring and comparing plans, finding out costs and determining whether you are eligible for a subsidy on a state or federal exchange.

Strategy #5: Consider a part-time job

If you’re short of income or have too much time on your hands, a part-time job may work for you. Retail offers many part-time opportunities. If you’re handy, a part-time job at Lowe’s or Home Depot will bring in some income, offer you some socialization opportunities and may earn you an employee discount on tools and home improvement items.

You may not need to work part-time for very long. Even $10,000 or $15,000 a year in part-time wages can give you some breathing room in your budget and allow you to postpone taking distributions from your retirement account or defined benefit pension or claiming Social Security.

Waiting to cash in on those income sources means they will have more time to grow, potentially providing you with a bigger source of income later in your retirement, even if it is three or five years down the road.

Strategy #6: Create or adjust your retirement plan

If you already have a retirement plan, it probably needs to be adjusted because it’s likely that your plan didn’t include a sudden early retirement.

If you don’t have a plan, now is an excellent time to create one. Why?  Because retirement isn’t an event, it’s a journey. To successfully navigate through the decades that are involved in retirement, you need a road map. That plan may not always be exactly on target, but it can be adjusted as circumstances warrant.

A final word

Unexpected retirement can be a shock. With some careful planning and a long-term outlook, it’s not only possible to survive a sudden retirement, but thrive and enjoy your golden years.

Disclosure: Registered Representative, Securities offered through Cambridge Investment Research Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. Humphrey Financial LLC & Cambridge are not affiliated.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. The presenting professional is not sponsored or endorsed by the Social Security Administration or any government agency.

Financial Adviser, Humphrey Financial LLC

Paul Humphrey specializes in helping union members and their families plan for their future. He has been in the financial services industry since 1999. He holds FINRA Series 7 and 66 licenses, as well as life and health insurance licenses. Paul is a Certified Financial Educator through the Heartland Institute of Financial Education. Humphrey Financial LLC is an independent financial services firm built on a stable foundation of consideration, care and knowledge.


Dear Penny: I Have $700K, but Spending Gives Me Panic Attacks

Dear Penny,

I’m a 61-year-old woman with $700,000 saved for retirement. I own my own home (with a mortgage), and I have more than five months of daily expenses in a cash account. I have a few investment accounts in addition to the cash and I basically follow a 60/20/20 budget for my after-tax and after-retirement dollars.  

Why can’t I stop freaking out about money? I save for home repairs, and then freak out when I write the check. I save for a new car and then freak out when it’s time to buy it. I HAVE THE MONEY.

I’m not poor, but I have been cash poor in the past. I have always saved for retirement, but I can’t stop freaking out. And by freaking out, I mean literally days of heart-pounding panic attacks where Xanax is my only friend.  

How do other people handle this? 


Dear L.,

Fear is healthy to a degree. It’s what makes us wear our seatbelts and avoid dark alleys at night. Some level of money-related fear is also a good thing. If you didn’t worry there was a chance you’d run out of it, why wouldn’t you spend every dollar?

But there’s a big difference between healthy fear and the serious anxiety that you’re experiencing. An advice columnist is no substitute for mental health treatment. Whatever you do, it’s essential that you discuss your anxiety with a professional.

I wish I could tell you that $700,000 is more than enough for you. But that wouldn’t be an honest answer. There’s no way I can tell you with certainty that any level of savings is a guarantee you’ll never run out of money. Even billionaires wind up in bankruptcy court. But there’s plenty you can do to reduce the risk of whatever outcome you fear.

Financial health isn’t just about any one number. That $700,000 could be more than enough if you live in a low-cost area and plan to work for several more years. But if you live in Manhattan, you want to retire next year and people in your family frequently live past 100, it could leave you woefully short. Context is what matters here. The amount you have saved is meaningless without knowing your lifestyle, goals and concerns.

What I’m wondering is how much actual planning you’ve done beyond just saving. Do you have an age in mind for when you want to retire? Have you thought about when you’ll take Social Security? Do you plan to stay in your home and, if so, will you be mortgage-free by the time you retire?

All of this may seem overwhelming to think about when money already causes you so much stress. But worrying constantly plays a mind trick on you. You spend so much brain space and energy on worrying that it can feel like you’re actually taking action.

I want you to do what seems counterintuitive and think about the absolute worst-case scenarios. But I don’t want you doing this alone. I’d urge you to meet with a financial adviser, since you have the means to do so.

Write down your biggest fears so that you can discuss them together. Are you afraid of outliving your savings? Are you worried the market will crash right as you’re about to retire? Or that health care costs will eat up your retirement budget?

A financial adviser doesn’t have any special sourcery that can guarantee none of these things will happen. What they can do, though, is help you reduce the risk of those worst-case scenarios. If you’re worried about running out of money, they can help you plan how much you’ll safely be able to withdraw from retirement accounts and when you should take Social Security. Of course they can’t stop a stock market crash from happening, but they can make sure your investments are safely allocated based on your goals.

It sounds like you’re someone with a low risk tolerance, which means you probably want to invest conservatively. Perhaps a good investment for you would be to pay off that mortgage using a chunk of that savings. Will it be scary to fork over that much money at once? Of course, especially since the interest savings will probably pale compared to your investment returns. But if you can sleep more soundly knowing that what’s probably your biggest expense is taken care of, it could be worth it. I’m not saying that’s something you should absolutely do, but it’s worth discussing with your financial pro.

I suspect that when you think realistically about your worst-case scenarios, you’ll realize things aren’t as dire as you imagined. Suppose for some reason you had to quit working tomorrow. Your plans for retirement would probably change significantly. But at the same time, you wouldn’t be left without food or a home.

You say you’ve been cash poor in the past. Yet you overcame that and even managed to save for retirement when you didn’t have much money. You aren’t doomed to repeat your past.

I think if you do what’s scary and face your fears head-on — with the help of both a financial and a mental health professional — you can reduce the anxiety you feel about money. That’s not to say you’ll never worry about money again. But you can get to a place where fears about money aren’t dominating your life.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].

Related Posts




How to Reassess Your Retirement Plans

Retirement planning is not a “set it and forget it” kind of exercise. Life changes quickly, and it’s important to understand that your retirement plans need to change just as fast. The retirement plan you had in your 20s when you were single is not the same retirement plan you’ll want in your 40s and 50s as your kids look to head off to college. Volatility with the stock market or other investments can also impact your retirement plans. As things change, it’s important to periodically reassess your retirement plans.

When you need to reassess your retirement plans

There are a few different times where you’ll want to reassess your retirement plans. The most crucial times will be when you have major changes to your life or family.

  • Marriage or Divorce
  • Birth or adoption of children
  • Change in employment
  • Moving to a different house

These types of major life events can have a major impact on how much money you need to retire, so you’ll want to reassess your plans. But it’s not only during these major life changes that revisiting your retirement planning makes sense. It’s smart to regularly review where you’re at for retirement, just like you should be regularly reviewing your monthly budget.

Understanding volatility in retirement planning

The one time that you DON’T want to make drastic changes to your retirement planning is during a major stock market downturn. When you see those big negative amounts in your 401k or brokerage account statements, it can be easy to panic and try to sell your stocks in order to stop the bleeding. 

The fact of the matter is that the stock market is extremely volatile. The stock market may average 8% or so over the long-term, but that one number masks a number of huge swings to both the positive and negative. Instead of panicking and selling when the stock market goes down, be proactive and prepare for the inevitable downturn. Sometimes the best thing to do is absolutely nothing.

Get comfortable with risk

Along the same lines of understanding volatility in the stock market, it’s important to get comfortable with risk. In general, the higher return that a type of investment will bring, the higher the amount of risk will also be. Deciding how comfortable you are with risk is an important part of assessing your retirement plans.

Risk is something that should not be feared — after all, hiding all of your money underneath your mattress is a relatively low-risk proposition. But it’s also not likely to lead to a successful retirement. Consider your time horizon — how long you have until you’re likely to retire — and adjust your risk accordingly. If you’re younger and further from retirement, you can afford to invest in relatively riskier investments. The closer that you get to retirement, the less risk that you should be taking on.

Review your portfolio allocation

Understanding and being comfortable with risk can help you as you review your portfolio allocation. Since different types of investments come with differing amounts of risk, it’s important to make sure your portfolio is allocated between investment types in a way that makes sense for your specific situation. 

Generally, the younger you are and the further you are away from retirement, the more it makes sense to have most of your investments in the stock market. The stock market has more volatility but historically has provided the highest returns as well. As you get older and closer to retirement, you will generally want to move a higher and higher percentage of your portfolio away from stocks and into an investment like bonds that has lower returns but also lower risk.

Consider talking with a financial advisor

A financial advisor can be a good resource if you’re looking at making sure you’re on the right road to retirement. A trusted financial advisor can look at where you’re at now, where you want to go, and help ask the questions you need to answer to make sure you’re on the right path. If you don’t currently have one, make sure to find a financial advisor that fits with the type of advice you are looking for.

The Bottom Line

It’s important to regularly reassess your retirement plans. You should review your retirement plans on a recurring basis with your spouse, trusted friends and family, or a financial advisor. You should also review your retirement plans whenever you have a major life change, such as a new child, new job, or when you move to a new home. Following these simple steps can help you make sure that you are on the road to a solid financial future.

Learn more about security

Mint Google Play Mint iOS App Store