By Scott Burns

Q. I am 62 years old, married and personally earn about $120,000 a year. I am retiring from my company this year, with a pension. Since my income will be greatly reduced now and until age 66, will my Social Security benefits be reduced due to my reduced income in the years between age 62 and 66? —HL, San Antonio

A. Your Social Security benefit is based on your earnings record and your age. Specifically, it is based on your highest 35 years of adjusted earnings. The benefit you are eligible for this year, at 62, will rise if you defer taking benefits until your full retirement age of 66 by one-third plus inflation adjustments. So if you are eligible today for a $900 monthly benefit, you would be eligible for $1,200 monthly if you waited until age 66.

If you work during this period, the additional earnings may improve your long-term work record and increase your future benefit. This can happen by displacing a year of low income in the 35-year average or by replacing a year of no earnings with a new year. Since your benefit is always based on your highest 35 years of earnings, it can't go down from its present level.

If you were to take a benefit at 62, and also consider working, you should be aware that your benefit might be reduced if your labor earnings exceed certain levels. (It would return to normal levels when you no longer earn more or reach full retirement age.) Also, your Social Security benefits may be come subject to taxation if either your labor earnings, pension or both work to increase your income beyond certain levels. It is important to understand that the reduction of benefits due to working between age 62 and full retirement age and the taxation of benefits are two distinct sets of rules.

Q. What is the impact on my future social security benefits of the reduction in the tax on my salary? I assume the benefits will still be a portion of the amount paid in, so that benefits will be reduced. —E.F., St Louis, MO

A. No, benefits will not be reduced because the employment tax has been temporarily reduced for workers. Benefits are based on your earnings history, not on the amount you pay in taxes.

Reducing the tax collection, however, will increase the unfunded liabilities of the program and put further pressure on Congress to do something to bring long-term stability to the program. Changes already mentioned include increasing the current wage base maximum cap, increasing the tax rate, changing the benefit adjustment formula, and increasing the age for retiring with full benefits.

Q. When looking at a portfolio that might provide support over the longer term, yet be relatively safe from loss, what do you look for? For instance, if you are looking to retire in the next 5 years, what percentage of a portfolio would you recommend to be invested in the various investment options? —N.L., by email

A. There is no such thing as a perfect portfolio, but there is such a thing as a best-all-around-portfolio, one that does nicely in good markets and reasonably in bad markets. “Reasonably” may be no better than losing less, but it can still give you a better chance that the portfolio will be around for as long as you are. That best-all-around portfolio is a traditional balanced portfolio, a mixture of stocks and bonds. Typically these are 60 percent stocks and 40 percent bonds, but the range can be from 50/50 to 75/25.

This is why you see frequent references in my column to Vanguard Balanced index fund (ticker: VBINX) and Vanguard Wellington fund (ticker: VWELX). Both are low-cost, no-load funds and both have provided better returns than the majority of their competition over many years. Over the last 12 months, for instance, Vanguard Balanced Index did better than 92 percent of its competitors. Over the last 10 years it beat 76 percent of its competitors and that was its “worst” period.

Vanguard Wellington, a low-cost but managed fund, has been disappointing over the last 12 months, beating only 49 percent of its competition. Over the last 10 and 15 years, however, it has beaten 95 and 93 percent of its competition, respectively.