A recent study by financial services provider Northwestern Mutual found that 28 percent of Gen Xers plan to start receiving Social Security payments as soon as they are eligible—even if it means their monthly benefit is reduced.
That may be because Gen Xers—those born between 1965 and 1980—are now within a few years, 20 at most, of retirement, according to Northwestern Mutual chief field officer John Roberts.
1. Live Within Your Means
“Once Social Security kicks in, living within one's means is no longer abstract,” financial adviser Randall Yates told NTD. “For most retirees, a safe monthly allowance requires vigilant budgeting.”As cofounder of the VA Loan Network in San Antonio, Yates helps retirees and military veterans blend their Social Security revenue with other retirement income.
Yates says he advises differentiating between discretionary and nondiscretionary expenses.
Nondiscretionary expenses include housing, rent, mortgage, food, health care, and utilities, Yates says, while discretionary expenses include costs such as travel, dining out, home renovations, new appliances, and hobbies.
“Use Social Security income to pay nondiscretionary expenses,” Yates says. “Use your retirement savings to pay nonessential, discretionary, and large one-time expenses.”
In January, the estimated average monthly Social Security retirement payout was $1,976, but certified financial planner Cary Carbonaro believes most Americans won’t be able to live on that amount alone.
2. Arranging Affordable Housing
Downsizing from a house to an apartment or condominium, or relocating to a more affordable neighborhood, are popular ways to cut expenses.However, Carbonaro advises that retirees study the real estate market before making any moves.
3. Consider More Conservative Investments
One rule of thumb for investing in retirement is to use the individual’s age to allocate the percentage they should hold in bonds, and to hold the remainder in stocks.For example, a 55-year-old would invest 55 percent of their portfolio in bonds and 45 percent in equities.
“They should already be less aggressive the older they get, which means they have more bonds, but it depends one hundred percent on the person and how much they are pulling out of their portfolio for living expenses,” Carbonaro said.
“They provide stability with reduced volatility and can protect against volatility—even though it seems counterintuitive to sacrifice growth,” he said.