While one major study suggests that The Great Recession is having less of an impact on America’s older citizens than previous economic downturns, one key indicator says shows that their retirment outlook is far from rosy.

A poll by the Pew Research Center reported that Americans over age 65 are less likely to have been forced to cut their spending by the downturn than middle-aged people.  That’s only good news when you don’t consider just how much other Americans have slashed spending.  While the recovery stalls, overall Americans’ income and spending are stagnant.

So it’s no surprise that we come to learn that the national Social Security fund is facing a shortfall this year as more seniors opt to collect payments before their full retirement age.  More people filed for Social Security in 2009 (2.74 million) than any year in history, and there was a big uptick in the number receiving reduced benefits because they filed ahead of their full retirement age which is now 66.

Over 70% of seniors filing for benefits elected for early benefits.  Age 62 is the earliest possible age for receiving retirement benefits.

It obvious how a couple factors play into this.  One, retirment plans and 401(k) accounts have been hit hard by the decline in the stock market in recent years, which is making it tougher for older Americans to rely on this income that they were expecting.  Two, with unemployment holding stubbornly north of nine percent and age descrimination still a very real problem in our society, it’s tougher for seniors to find and keep jobs.

If you are at retirment (or early retirment) age and want to know more about your options, you can visit the website of the Social Security Administation.  There are helpful tools like benefit calculators and frequently asked questions and answers.

Taking benefits early is rarely a good option if one has other sources of income, as the retirement benefits are greatly reduced when one goes this route.  Cutting spending, downsizing the home or taking on freelance work are all better choices for making ends meet.

windfall [ˈwɪndˌfɔːl]
n
1. (Economics, Accounting & Finance / Banking & Finance) a piece of unexpected good fortune, esp financial gain

When life gives you lemons, you make lemonade.  When life gives you a cornucopia basket, things get more complicated.

When you’re in debt and you get a big lump sum of money, it’s tough to know what to do.  Commonly known as a windfall, this can come from an inheritance, legal settlement, life insurance payout or lottery winnings.  The easy answer is put it all towards your bills, but as is often the case in life, the easy answer isn’t always the right one.

I had to grapple with this “problem” when I received my most recent sales commission check, which was the biggest in my career.  While not exactly a windfall (as I worked my butt off for every dime) it’s still a good sum of money that I don’t get on a regular basis that I have to decide how to spend.  Basically I was torn between paying off debt, saving for the future and spending it on purchases that otherwise could have been held off (i.e. discretionary items.)

Typically the best return on the money comes from paying off debt, especially credit card debt.  When banks are paying less than two percent on savings vehicles and charging upwards of 20 percent for revolving credit, it may seem like a no-brainer.  However, one of the problems with using a windfall to pay off debt is that it’s also the most restrictive option.  Once you pay down a bill, you should consider that money gone.  If it’s a car loan, mortgage, student loan or other installment credit vehicle then you won’t be able to tap into that money ever again.  If it’s a credit card or line of credit, the issuing bank can reduce your limit or close the account.  If an emergency arises, you may wish that you held some of that money back.

Saving and investing is another option, but it typically means that you’re still carrying debt that you’re paying a higher rate on.  But, as long as you invest wisely, you have the flexibility to pay off the debt later or have a rainy day fund for when things get really bad.

Of course paying off bills and putting money aside for the future aren’t nearly as much fun as buying an iPad or taking a trip to the beach.  It’s psychologically very difficult to see money pass through your hands without any real emotional enjoyment.  Although you may have more peace of mind when your bills are paid or you have a cash cushion, it can almost seem like you got no windfall at all.

One of the biggest challenges in getting a windfall is keeping the news of it to yourself (and spouse if you’re married.)  Because despite how much you will want to brag about your good fortune, this is one of the worst things you can do.  You don’t have to look very hard to find examples of lottery winners, professional athletes and others who lost everything (including their lives) when preyed upon by greedy family members and other hangers-on.

After a lot of thought I decided to allocate my commission check this way:
-75% for debt reduction
-15% into savings (including 5% in automatic 401(k) investments) and
-10% towards a new kitchen, which is something I can see and feel every day, reminding me of why I work in the first place.

Think I made a mistake?  Have at it in the comments.

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