Thread: Seniors on Social Security can make the most of savings

Seniors on Social Security can make the most of savings

By Sandra Block, USA TODAY

Old age is filled with indignities — thinning hair, achy joints, sales clerks who mumble — and now there's this: no increase in retirement benefits for the second year in a row.

Last week, the Social Security Administration announced that 58 million retirees and individuals with disabilities won't get a cost-of-living allowance in 2011. By law, the Social Security Administration can't increase benefits unless consumer prices in the most recent third quarter have increased since the last cost-of-living adjustment. Social Security said there has been no increase from the third quarter of 2008.

TOUGH TIMES: No increase in Social Security benefits for 2nd year

If you retired with a pile of money, this won't affect your standard of living. But Social Security accounts for nearly 40% of average income for retirees age 65 and older, according to the Employee Benefit Research Institute. More than a third of elderly Americans depend on Social Security for 90% of their income, according to Congress' Joint Economic Committee.

The pay freeze coincides with another hit to seniors' income: rock-bottom interest rates. The average interest rate for a one-year certificate of deposit was 0.55% last week, according to Bankrate.com. Investments that generate a higher return are often too risky for older retirees, says David Kay, a financial planner in Dayton, Ohio.

Some lawmakers have proposed giving seniors a $250 payment to make up for the absence of a cost-of-living increase. But in this fraught political environment, you shouldn't count on a check next year. Instead, consider other ways to get the most from your savings, including:

•Ladder your CDs. You can eke out a higher return by buying CDs of different maturities, a strategy known as laddering. For example, if you had $20,000 to invest, you would buy five CDs and put $4,000 in a one-year CD, $4,000 in a two-year CD and so on. Every time a CD matured, you would reinvest it in a five-year CD. The advantage of this strategy is that you benefit from higher rates from longer-term CDs, while at the same time having money available to reinvest when interest rates rise.

Right now, though, investors aren't getting rewarded for investing in long-term CDs. The average rate for a five-year CD last week was 1.63%, according to Bankrate. For that reason, Greg Womack, a financial planner in Edmond, Okla., recommends going out no further than three years and maybe just two. While inflation isn't a problem now, it could return in the near future, he says, and "Interest rates could go up ferociously in a short period of time." If that happens, keeping most of your CDs short term will allow you to take advantage of the higher rates,

•Shop around for CD rates. Several banks are offering rates for one-year CDs of up to 1.48%. That's not going to make anybody rich, but it's considerably higher than the average rate. You can find top-yielding CDs at www.bankrate.com.

Lessons for near-retirees

If you're working for the weekend and dreaming about retirement, the Social Security benefits freeze offers some important lessons, including:

•You can protect yourself by waiting to file for benefits. You're eligible for Social Security at 62, but the amount of your benefits will be permanently reduced. Postponing benefits will result in a higher monthly check and could lead to higher lifetime benefits, depending on how long you live. The Social Security Administration estimates that the average retiree breaks even at 77.

Many seniors who are out of work or in poor health have no choice but to file as soon they're eligible. But if you're healthy and employed, you should postpone benefits for as long as possible, Kay says. Delaying benefits could improve your standard of living in your later years — and make you less dependent on an annual COLA increase.

•As you approach retirement, try to put aside at least two years' worth of expenses in a safe, liquid account, such as a bank savings account or money market fund. Once you retire, you can use the money to pay your bills, and replenish the fund with capital gains, dividends and interest, says Nancy Flint-Budde, a financial planner in Salem, N.Y. Having at least a two-year cushion will help you weather a down period like this one, she says.

Like the stock market, inflation doesn't travel in a straight line, Flint-Budde says. For that reason, she says, counting on an increase in your Social Security benefits every year "is not a realistic expectation."

http://www.usatoday.com/money/perfi/col ... 9_ST_N.htm

And the Congress had increased the Federal payrolls and voted themselves raises every year - I doubt that this year will be any different.

We are spending how much educating, feeding, housing, and jailing illegals?