Earn without reducing retirement benefits

Q: I will turn 66 on Feb. 25, 2009. This is my full retirement age. I would like to retire on Jan. 1, 2009, and continue to work — but on a part-time basis. Will the month between my retirement date and my birth month cause me to be penalized for having more than $12,350 income from my part-time job for the year 2009? I haven't received a clear answer from Social Security, so I'm hoping you can help.

A: In the year you reach your full retirement age, the amount that you can earn from wages without having to give up some of your benefits is increased. Instead of $13,560, it rises to $36,100. These are the limit figures for 2008. The 2009 figures will be adjusted higher for inflation.

Since you will be working only part time for the two months before reaching full retirement age, it is unlikely that you'll have to return any of the Social Security benefits you will receive during this period.

Q: I've recently sold my house in preparation for my wedding in October. I have no credit- card debt. I have $8,000 in the bank. It would cover about five months of living expenses if I became unable to work.

My question is: The only debt I have is a car loan at 5.5 percent, with 15 payments left. The car loan is just over $5,500.

Since I have the money in the bank, should I just pay off the loan and keep saving? It is a higher percentage rate than what my $8,000 is getting. It's always hard for me to make the "smarter" decision with these things.

A: Keep your money in the bank and keep on making those monthly payments. While you would save some interest by paying off the loan, the amount of interest you would save is pretty small. To gain that saving, you have to reduce your five months of living-expense reserve to less than two months.

If you are saving $1,600 a month in addition to the car- loan payment, you are building your living-expense reserve at the rate of one month per month. That means your $8,000 checking account will soon be large enough to put some money in higher-yield investments, such as an intermediate-term bond fund.

Questions: scott@scottburns.com