The following is from a PBS interview. If you are a few years away from retirement, I urge you to take a look at the full article linked below. Pay special attention to the Social Security strategy.
Boston University economist Larry Kotlikoff has spent every week, for more than two years, answering questions about what is likely your largest financial asset — your Social Security benefits. His Social Security original 34 “secrets”, his additional secrets, his Social Security “mistakes” and his Social Security gotchas have prompted so many of you to write in that we feature “Ask Larry” every Monday. Find a complete list of his columns here. And keep sending us your Social Security questions.
Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version. His new book, “Get What’s Yours — the Secrets to Maxing Out Your Social Security Benefits,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) was published in February by Simon & Schuster.
Every question in personal finance begins and ends with our living standard. If I retire early, how much more do I need to save today to prevent my living standard from dropping at retirement? If I contribute more to a 401(k) will I be able to lower my lifetime taxes and raise my living standard? If I get an MBA will the payoff exceed the costs so I can have a permanently higher living standard? If I take a mortgage with points does that raise or lower my sustainable spending power? If I wait to take my Social Security retirement benefit will the higher benefits make up for the waiting and let me spend more now as well as later? And the list goes on.
Let me illustrate the power of economics, mathematical algorithms and modern computers to safely raise your sustainable living standard.
Meet John and Jane Smith, a married California couple who are both age 56. The two plan to work till age 62, take their Social Security benefits at that age and spend down their retirement account assets – John’s 401(k) and Janes’ IRAs — smoothly starting at 65. John makes $75,000 and Jane makes $25,000. They have $50,000 in a checking account. John has a $400,000 401(k) and Jane has a $100,000 traditional IRA. Their $500,000 home is paid off, but keeping it up is expensive. Annual property taxes run $7,500. Homeowners insurance costs another $2,500 per year, and the upkeep averages $2,000 annually. John is contributing $2,000 per year to his retirement account. His employer is matching the $2,000 contribution. Jane isn’t contributing anything anymore to her IRA.
I ran John and Jane through my company’s ESPlannerBASIC software. It shows that the Smiths can spend $46,058 each year (valued in today’s dollars) after paying all their federal FICA and federal and state income taxes, their life insurance premiums, their Medicare Part B premiums and their housing costs.
I’m now going to take you though 10 magic tricks that produce, in terms of the resulting higher living standard, the equivalent of their finding $793,000 on the street!
You might want to spend a few minutes reading this article. 10 WAYS TO SAFELY RAISE YOUR STANDARD OF LIVING IN RETIREMENT
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