‘A wholesale attack on conventional financial planning’—some provocative views about retirement, Social Security, and mortgages

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This article is reprinted with permission NextAvenue.org,

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Boston University economics professor and social security expert Lawrence Kotlikoff has written an excellent new book, “Money Magic: An Economist’s Secrets to More Money, Less Risk, and a Better Life.” In it, he provides counter-intuitive and surprising personal finance tips, regardless of your age.

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You want to hear them.

I had to smile at some of Kotlikoff’s words as they were often thought of, but rarely spoken verbally.

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Take this nugget: “Marrying for money can seem overwhelming,” he writes. “But this is one of the oldest financial practices. For most of us, love goes beyond money. But we humans have the ability to fall in love with a lot of people. And to lash out at someone we love in one fell swoop. There’s no shame in targeting someone who can provide you with a higher standard of living. Bottom line: If you’re going to be shopping for a partner or spouse, you might end up shopping for someone who makes a lot more money than you. Used to be. “

Lawrence Kotlikoff’s ‘Money Magic’ Ideas

He is not playing. This is not his style. He’s serious. In fact, it is precisely because Kotlikoff’s views are worth hearing that Next Avenue named him A. kept 2015 Influencers in Aging And why the site has republished excerpts he wrote for “PBS NewsHour.”

In his new book—his 20th—Kotlikoff talks about ways to maximize Social Security benefits, why mortgages aren’t “your friend,” and why he’s a fan of Treasury bonds and Treasury bond funds, whose returns are linked to inflation, called TIPs. goes. But perhaps his two most important pieces of advice: Link your financial plans to our longer lives and don’t retire too early.

plusWhen should I claim Social Security? dilemma and strategy

Let’s say this one-time presidential candidate (it’s true; a write-in) is a rabble-rouser when it comes to traditional financial advice. For example, he urges retirees to tap their individual retirement account first and Social Security second, and cash out their IRA to pay off their mortgage.

Who says?!

And Kotlikoff got my full attention when I read his view on managing careers for a long time, which can be summed up in three words: Don’t get complacent.

“Keep thinking about tomorrow,” he writes. “Are you in the best possible career for the rest of your working day? Should you make the switch? Is your current career at risk? In other words, keep your options open with your eyes open. Spouse, partner, parent or Schedule a date every few months to do a career review with a friend.”

I interviewed Kotlikoff to learn more. main characteristics:

Kerry Hannon: Why did you write this book now?

Lawrence Kotlikoff: The book is a wholesale attack on traditional financial planning, about saving the wrong amount when young, planning too little, and spending too much when old.

Under these assumptions, if you have a conservative portfolio, you have a much higher chance of running out of money.

We have an urgency because baby boomers are retiring too early. They’re coming into retirement with very little assets and they’re getting their Social Security way too early. I see all these huge mistakes. I think the first paper I wrote outside of grad school was on the inadequacy of savings. I have been concerned with this issue for 40 years.

SeeRetirement Crisis: Where Do We Stand?

You write that one should plan their financial life for their ‘maximum age’ – their actuarial life expectancy. what is your thinking behind this,

There is a financial risk of living too long after retiring too early. We have to plan for our maximum life because we can live so long. There’s no getting around the fact that we can’t count on dying in time.

We have to look at the financial worst-case scenario, which is a dire scenario. Financially speaking, it is living up to your maximum age as you have to pay for yourself full time.

The chances of taking it to its maximum are so slim, but you can’t overlook the future and the potential to live so long – that’s your planning horizon.

Tell me a little bit about your secrets to maximizing Social Security to get the biggest retirement benefits.

one thing to know All Your benefits as it uses it or loses it with Social Security. If you don’t know about them, and you apply too late, they’re gone.

Be patient there will be another top secret. For each year you delay making a claim between your full retirement age [66 to 67 depending on when you were born] And at age 70, your Social Security benefits increase by 8%.

These days, the Social Security Administration pays us more than an astonishing rate to be patient because benefits are going to increase dramatically if you wait to collect them. [age] 70.

After inflation it’s going to be about 76% higher, if you take it to 62. take on [the earliest year you’re allowed to begin claiming], This is a huge difference.

Being patient with your retirement benefits will also benefit your surviving spouse and children, and your ex-spouse if they were married with you for 10 or more years.

there’s another secret No Ask Social Security representatives any questions because half the time they will have a wrong answer or a misleading or incomplete answer.

The AAP recommends that people tap their retirement accounts to delay taking Social Security retirement benefits. Why?

You have to pay taxes on a 401(k) or IRA one way or another, and one of the benefits of delaying that withdrawal was getting a lower tax bracket. But it’s not that big of a gain since the tax law changes in 2017.

People will say, ‘I want to leave my money in my 401(k) and take out my Social Security early because I know the stock market is going to be a killer.’

But we cannot rely on stocks. Social Security is offering a positive, real return that is actually very high if you wait to take it.

The financial industry is trying to sell products and fees that can accrue on money that people have in their 401(k) or IRA.

You write that the mortgages are ‘not your friends’. Why?

They are financially expensive. They are financial losers. The other is that they are tax losers because the standard deduction has been raised so much and no one is actually taking the itemized deduction. [for mortgage interest] now and.

Taking money out of your IRA, paying taxes on it, and paying off the 30-year mortgage can make you a bundle if we’re talking a large mortgage. This is one way to get a safe, genuine refund.

YouYou write about the magic of late retirement, and it’s one of my favorite things to tell people. can you explain?

It’s very complicated to choose when you retire because it affects how much you need to spend this year, how much you need to save or can spend on an ongoing basis, and how much you can spend until you retire. How much do you need to save by then? This affects your taxes. This affects how much your employer is contributing to your 401(k).

If you retire early, there’s going to be less [retirement plan] Contribution. It affects your health insurance; You may have to go to buy the policy. These are all interconnected issues.

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It’s not an easy decision, but every year you wait, you know you’re reducing your risk of overdoing your money. The sooner you retire, the more years you’ll have to self-finance. I think of retirement as financial suicide for most people. This is the decision to take the longest vacation of your life.

Keri Hannon is the author of “Great Pajama Jobs: Your Complete Guide to Working from Home.” He has covered personal finance, retirement and career for the New York Times, Forbes, Money, US News & World Report and USA Today. She is the author of more than a dozen books, including “Never Too Old to Get Rich: The Entrepreneur’s Guide to Starting a Business Mid-Life.” Her website is kerryhannon.com.

This article is reprinted with permission NextAvenue.org, © 2022 Twin Cities Public Television, Inc. All rights reserved.

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