This book will help you meet your goals

By Elliot Raphaelson
Posted on March 30, 2022

If you are contemplating retirement, or are in the early stages of retirement, I highly recommend a new book published last month: Money Magic: An Economist’s Secret to More Money, Less Risk, and a Better Life by Laurence Kotlikoff.

The author, a professor of economics at Boston University, has written 20 books and hundreds of articles in major publications, and this ranks as one of the best books on the subject. The book covers a range of issues such as careers, college education, housing, investing, retirement accounts and divorce.

You will find that Kotlikoff’s suggestions do not align with the conventional advice offered by many financial advisers. However, when he offers his unconventional advice, he offers sound explanations.

Here are some of the book’s highlights:

Social Security: Kotlikoff points out that waiting until 70 to file for Social Security benefits is one of the most important retirement moves. It’s a point he made in his best-selling 2015 book, Get What’s Yours: Secrets to Maximizing Your Social Security.

The difference in monthly income between filing early at 62 or waiting until age 70 is 76%. After you reach your full retirement age, your benefits increase 8% per year up to age 70.

Given this huge difference, Kotlikoff argues it’s to your advantage to make withdrawals from your IRAs or other retirement plans in order to postpone taking your Social Security benefit. As I have pointed out in many of my columns, waiting until 70 to claim your benefit provides a much higher survivor benefit.

Housing: You should consider downsizing when you retire. In addition, you should consider moving from a higher-cost to a lower-cost area. Kotlikoff believes you should use some of your retirement account assets to pay off your mortgage before you retire. The book covers the pros and cons of reverse mortgages.

College education: Kotlikoff does not favor borrowing money to attend college. He points out that 40% of students who enter college don’t finish. He discusses actions to take if you have a great deal of student debt. He addresses what he calls “real student aid,” such as grants, scholarship and work study programs.

Retirement: Kotlikoff believes that too many individuals retire prematurely. He points out that every year you delay retiring is a year that you don’t have to draw from your savings or retirement accounts. Because, on average, people are living longer, workers who retire early may spend more years living in retirement than they did working.

Investment: Kotlikoff points out that one of the biggest mistakes individuals make is failing to invest enough in their employer’s retirement plan to get the employer match.

He believes you should establish a global lifetime portfolio balance. Then adjust your asset allocation over time in light of your ability to diversify your full resources. In other words, rebalance your portfolio on a regular basis.

He also believes that investing in safer assets such as TIPS and I-bonds serves to reduce your risk. [See “A good time for inflation-protected bonds,” in the February Beacon.]

He believes that retirees should invest more heavily in stocks the older they are, reasoning that most older individuals spend down their assets as they age. However, their “bond-like” Social Security benefits will remain fixed. This approach will help maintain a constant ratio of risky to safe assets.

Divorce: Kotlikoff recommends, as I have said repeatedly, that if you do divorce, “do so after 10 years.” There may be sizable divorced spousal and divorced widow(er) benefits at stake.

He also comments that marriages aren’t necessarily built to last. “They need constant minding,” he writes. “Don’t take yours for granted or you may end up like almost half the country — divorced.”

In this book, Kotlikoff offers a lot of sound advice, much of it at odds with what you will read from other authors who don’t match his expertise. You will learn a great deal from it.

Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.