Dear Liz: I have a retirement account at work and a stock portfolio. Both are down significantly this year and I’m tired of losing money. What are the safest options now?
Answer: Before the “what” you need to think about the “why” and the “when.” Why are you investing in the first place? And when will you need this money?
If you’re investing for retirement, you may not need the money for years or decades. Even when you’re retired, you’ll likely need to keep a portion of your money in stocks if you want to keep ahead of inflation. The price for that inflation-beating power is suffering through occasional downturns.
You won’t suffer those downturns in “safer” investments such as U.S. Treasuries or FDIC-insured savings accounts, but you also won’t achieve the growth you likely need to meet your retirement goals. In fact, you may be losing money after inflation and taxes are factored in.
Also keep in mind that if you sell during downturns, you’ve locked in your losses. Any money that’s not invested won’t be able to participate in the inevitable rebounds after downturns. Plus, you may be generating a tax bill, since a stock that’s down for the year may still be worth more than when you bought it. (You don’t have to worry about taxes with most retirement accounts until you withdraw the money, but selling stocks in other accounts can generate capital gains.)
The exception to all this is if you have money in stocks that you’re likely to need within five years. If that’s the case, the money should be moved to investments that preserve principal so the cash will be there when you need it.
Dear Liz: I am a retired special education teacher who receives a government pension. The recent law change now permits me to also receive Social Security. I have 38 of the 40 credits required in order to qualify. Am I better off getting a job to earn those two credits? Another teacher explained to me that I can be paid 50% of my husband’s Social Security benefit instead. That would likely be greater than my own Social Security benefit. We would both wait until we are 70 to collect Social Security.
Answer: The Social Security Fairness Act did away with the windfall elimination provision and the government pension offset, two rules that reduced Social Security benefits for people receiving pensions from jobs that didn’t pay into Social Security.
As you’ve noted, to qualify for your own benefit you would need 40 quarterly credits or 10 years of work history at jobs that paid into Social Security. If your credits were earned decades ago at low-paying jobs, then your spousal benefit might well be larger than your own retirement benefit.